When the economic crisis and vicious credit crunch of 2008 hit, Toyota Financial Services (TFS) moved adroitly to tap the friendliest funding sources, reassure lenders and investors, and win an Alexander Hamilton bronze award in 2009 for its success in liquidity management. So why is TFS back in the winners' circle again, this time for a gold award for liquidity management? Because the crisis exposed weaknesses in its liquidity risk models, and TFS went to work to build a better mousetrap, explains Amit Shroff, head of financial planning and analysis and market risk for the Torrance, Calif., auto finance company.

The tool was under development but already useful when Toyota was rocked by a series of automobile recalls in 2010 that shook investor confidence and temporarily shut TFS out of the term funding markets. Armed with more sophisticated metrics that embraced the whole balance sheet and used scenario analysis and dynamic risk management metrics in addition to static ones, TFS liquidity managers were able to move quickly to diversify funding sources. TFS launched its first asset-backed commercial paper program, re-entered the market for longer maturity asset-backed securities, and increased and extended (but did not use) bilateral lines of credit to maintain adequate liquidity to support car sales.

Moreover, the clarity and comprehensiveness of the new model helped to assure nervous executives at the parent company, as well as investors and credit rating agencies, that TFS could assess precisely its liquidity risk and take appropriate measures to mitigate it, Shroff explains. "We developed a panoramic liquidity risk view that enabled comprehensive risk assessment, optimal decision-making, and served as a communication platform with internal and external stakeholders," he says.