BANCO BILBAO VIZCAYA ARGENTARIA, S.A. AND ... - BBVA

consideration. These figures are supplemented by periodic stress comparisons, back-testing and scenario
analyses.
7.3 LIQUIDITY RISK
The aim of liquidity risk management and control is to ensure that the payment commitments can be duly
met without having to resort to borrowing funds under burdensome terms, or damaging the image and
reputation of the institution.
The Group’s liquidity risk monitoring is centralized in each bank and takes a dual approach: the short-term
approach (90-day time horizon), which focuses basically on the management of payments and collections of
Treasury and Markets, calculates the Bank’s possible liquidity requirements; and the structural, long-term
approach, which focuses on the financial management of the balance sheet as a whole, with a minimum
monitoring time frame of one year.
The evaluation of asset liquidity risk is based on whether or not assets are eligible for rediscounting at the
corresponding central bank. For normal situations, both in the short and medium term, those assets that are
on the eligible list published by the European Central Bank ("ECB") or the corresponding monetary authority
are considered to be liquid. Non-eligible assets, quoted or non-quoted, are considered to represent a second
line of liquidity for the entity when analyzing crisis situations.
Liquidity management is performed entirely by the Bank's Assets and Liabilities Committee (“ALCO”),
through Financial Management. For its implementation, it uses a broad scheme of limits, sublimits and alerts,
approved by the Executive Committee, based on which the Risk Area carries out its independent
measurement and control work. It also provides the manager with back-up decision-making tools and
metrics. Each of the local risk areas, which are independent from the local manager, complies with the
corporative principles of liquidity risk control that are established by the Global Risk Management Unit, the
Structural Risks unit for the entire Group.
For each entity, the management areas request an outline of the quantitative and qualitative limits and alerts
for short and medium-term liquidity risk. This request must be authorized by the Executive Committee. A
core principle in the BBVA Group’s liquidity management has long been to encourage the financial
independence of its subsidiaries. This aims to ensure that the cost of liquidity is correctly reflected in price
formation and that there is sustainable growth in the lending business.
Also, the Risk Area performs periodic (daily and monthly) risk exposure measurements, develops the related
valuation tools and models, conducts periodic stress tests, measures interbank counterparty concentration,
prepares the policies and procedures manual, and monitors the authorized limits and alerts, which are
reviewed at least once every year.
Information on liquidity risk is sent at least monthly to the Group’s ALCO and to the managing areas
themselves. Under the Contingency Plan, the Technical Liquidity Group (“TLG”), in the event of an alert of a
possible crisis, conducts an initial analysis of the Bank’s short- and long-term liquidity situation. The TLG is
made up of specialized staff from the Short-Term Cash Desk, Financial Management and the Structural Risk
unit. If the alert is serious, the TLG reports the matter to the Liquidity Committee, which is composed of the
managers of the related areas. The Liquidity Committee is responsible, in situations requiring urgent
attention, for calling a meeting of the Funding Committee.
During the six months ended June 30, 2010, the decisive role that central banks and governments assumed
favored the liquidity conditions on interbank markets. The Group has not had to resort to using the measures
established in Spain to mitigate bank funding issues.
For the six months ended June 30, 2010, within its framework of projects, the Basel Committee on Banking
Supervision carried out a quantitative impact study (QIS) on its proposals, in order to reinforce the regulation
standards for the international financial system in terms of capital and liquidity. The preliminary results will be
presented throughout the second half of 2010.
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