(1) Diversified Funding: Problems with Steering Towards Long-Term Stable Funding; (2) Analysing the Best Internal Mechanism for Managing new Liquidity Requirements
(1) An Overview of the NSFR Liquidity Framework; (2) Building NSFR into FTP Logic; (3) Integrating NSFR into FTP and Liquidity Management Systems; (4) FTP and NSFR: Strategic Considerations
(1) An Overview of the NSFR Liquidity Framework; (2) Building NSFR into FTP Logic; (3) Integrating NSFR into FTP and Liquidity Management Systems; (4) FTP and NSFR: Strategic Considerations
Corporate failures are not uncommon in today's business world. However, when a company like Silicon Valley Bank (SVB) collapses, it sends shockwaves throughout the industry. SVB was once a thriving banking institution that specialized in tech startups, but its downfall was swift and sudden. The reasons behind SVB's collapse are complex, but they offer valuable lessons for all businesses.
Basel Accords - Basel I, II, and III Advantages, limitations and contrastSyed Ashraf Ali
The Basel Accords is referred to the banking supervision Accords (recommendations on banking regulations). Basel I, Basel II and Basel III was issued by the Basel Committee on Banking Supervision (BCBS). They are called the Basel accords as the BCBS maintains its secretariat at the Bank for
International Settlements in Basel, Switzerland and the committee normally meets there. The Basel Accords is a set of
recommendations for regulations in the banking industry.
This presentation is the one stop point to learn about Basel Norms in the Banking
This is the most comprehensive presentation on Risk Management in Banks and Basel Norms. It presents in details the evolution of Basel Norms right form Pre Basel area till implementation of Basel III in 2019 along with factors and reason for shifting of Basel I to II and finally to III.
Links to Video's in the presentation
Risk Management in Banks
https://www.youtube.com/watch?v=fZ5_V4RW5pE
Tier 1 Capital
http://www.investopedia.com/terms/t/tier1capital.asp
Tier 2 Capital
http://www.investopedia.com/terms/t/tier2capital.asp
Basel I
http://www.investopedia.com/terms/b/basel_i.asp
Capital Adequacy Ratio
http://www.investopedia.com/terms/c/capitaladequacyratio.asp
Basel II
http://www.investopedia.com/video/play/what-basel-ii/?header_alt=c
Basel III
http://www.investopedia.com/terms/b/basell-iii.asp
RBI Governor - Raghuram G Rajan on the importance if Basel III regulations
https://youtu.be/EN27ZRe_28A
Title: "Euro Currency Market"
Prepared by: Tehseen Khan
1: INTERNATIONAL FINANCIAL MARKET
. The foreign exchange market is a global decentralized market for the trading of currencies
. The main participants in this market are the larger international banks
.The foreign exchange market works through financial institutions, and it operates on several levels
2: EUROCURRENCY MARKET
A Eurocurrency market is a currency market that runs banking services by using foreign currencies set outside of the national market.
3: EUROBOND
A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued.
The 2018 edition of the OECD Business and Finance Outlook addresses connectivity, both among institutions within the global financial system and among countries. Almost a decade on from the 2008 financial crisis, the Outlook examines new risks to financial stability that will put financial reforms to the test, focusing in particular on the normalisation of monetary policy, debt problems and off-balance sheet activity in China. It also examines how supply-side and demand-side policies can help ensure foreign infrastructure investment is high quality, sustainable and works for all, with particular reference to China’s Belt and Road Initiative. Find out more information at https://oe.cd/2lH
Stress Testing and the Impact that Over-Reliance on VaR as a risk metric in t...Conor Cooney
A Presentation on the Development of Stress Testing.
Demonstrating the impact that Risk Management Models had on the Great Recession and what lessons can be learned from it.
There is also a demonstration of an Irish example of a successful stress test, that was one of the fundamental focal points in the lead up to the state's exit from an IMF bailout programme
Corporate failures are not uncommon in today's business world. However, when a company like Silicon Valley Bank (SVB) collapses, it sends shockwaves throughout the industry. SVB was once a thriving banking institution that specialized in tech startups, but its downfall was swift and sudden. The reasons behind SVB's collapse are complex, but they offer valuable lessons for all businesses.
Basel Accords - Basel I, II, and III Advantages, limitations and contrastSyed Ashraf Ali
The Basel Accords is referred to the banking supervision Accords (recommendations on banking regulations). Basel I, Basel II and Basel III was issued by the Basel Committee on Banking Supervision (BCBS). They are called the Basel accords as the BCBS maintains its secretariat at the Bank for
International Settlements in Basel, Switzerland and the committee normally meets there. The Basel Accords is a set of
recommendations for regulations in the banking industry.
This presentation is the one stop point to learn about Basel Norms in the Banking
This is the most comprehensive presentation on Risk Management in Banks and Basel Norms. It presents in details the evolution of Basel Norms right form Pre Basel area till implementation of Basel III in 2019 along with factors and reason for shifting of Basel I to II and finally to III.
Links to Video's in the presentation
Risk Management in Banks
https://www.youtube.com/watch?v=fZ5_V4RW5pE
Tier 1 Capital
http://www.investopedia.com/terms/t/tier1capital.asp
Tier 2 Capital
http://www.investopedia.com/terms/t/tier2capital.asp
Basel I
http://www.investopedia.com/terms/b/basel_i.asp
Capital Adequacy Ratio
http://www.investopedia.com/terms/c/capitaladequacyratio.asp
Basel II
http://www.investopedia.com/video/play/what-basel-ii/?header_alt=c
Basel III
http://www.investopedia.com/terms/b/basell-iii.asp
RBI Governor - Raghuram G Rajan on the importance if Basel III regulations
https://youtu.be/EN27ZRe_28A
Title: "Euro Currency Market"
Prepared by: Tehseen Khan
1: INTERNATIONAL FINANCIAL MARKET
. The foreign exchange market is a global decentralized market for the trading of currencies
. The main participants in this market are the larger international banks
.The foreign exchange market works through financial institutions, and it operates on several levels
2: EUROCURRENCY MARKET
A Eurocurrency market is a currency market that runs banking services by using foreign currencies set outside of the national market.
3: EUROBOND
A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued.
The 2018 edition of the OECD Business and Finance Outlook addresses connectivity, both among institutions within the global financial system and among countries. Almost a decade on from the 2008 financial crisis, the Outlook examines new risks to financial stability that will put financial reforms to the test, focusing in particular on the normalisation of monetary policy, debt problems and off-balance sheet activity in China. It also examines how supply-side and demand-side policies can help ensure foreign infrastructure investment is high quality, sustainable and works for all, with particular reference to China’s Belt and Road Initiative. Find out more information at https://oe.cd/2lH
Stress Testing and the Impact that Over-Reliance on VaR as a risk metric in t...Conor Cooney
A Presentation on the Development of Stress Testing.
Demonstrating the impact that Risk Management Models had on the Great Recession and what lessons can be learned from it.
There is also a demonstration of an Irish example of a successful stress test, that was one of the fundamental focal points in the lead up to the state's exit from an IMF bailout programme
A set of international banking regulations put forth by the Basel Committee on Bank Supervision, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets.
The impact of Basel III, also known as The Third Basel Accord, will vary by geography -- from potentially slowing down economies in emerging nations, to protecting the European Union from financial collapse, to increasing capital adequacy and improving risk management. Given the framework and timeline for implementing Basel III, the burden falls on national regulators to translate the international guidelines into national policies that suit and stabilize their economic environment and support economic growth.
Cost of Trading and Clearing OTC Derivatives in the Wake of Margining and Oth...Cognizant
We examine how recent regulatory changes (in central clearing, margin requirements, etc.) are impacting the OTC derivatives market, and causing several leading players to exit. With the spike in clearance and trading costs, a multitude of ratios show how firms are likely to adjust.
Ciclo de Conferencias: Reacting to the crisis: the new regulatory environment. En colaboración con el Instituto de Empresa
Vicente Salas
Universidad de Zaragoza
Madrid, 14 de marzo de 2011
MTBiz is for you if you are looking for contemporary information on business, economy and especially on banking industry of Bangladesh. You would also find periodical information on Global Economy and Commodity Markets.
Signature content of MTBiz is its Article of the Month (AoM), as depicted on Cover Page of each issue, with featured focus on different issues that fall into the wide definition of Market, Business, Organization and Leadership. The AoM also covers areas on Innovation, Central Banking, Monetary Policy, National Budget, Economic Depression or Growth and Capital Market. Scale of coverage of the AoM both, global and local subject to each issue.
MTBiz is a monthly Market Review produced and distributed by Group R&D, MTB since 2009.
Adrian Blundell-Wignall, OECD: "An optimal bank structure?"Global Utmaning
A presentation held by PhD Stefano Pagliari, Departement of International Politics, City University London, at the high level seminar "Towards a sustainable financial system", hosted by the Stockholm based think tank Global Challenge in cooperation with London School of Economics and Swedish House of Finance on September 12th 2013.
With today’s modern advancements in global banking and financial services technologies and interconnectivity, implementing effective, robust, and proportional Anti-Money Laundering (AML) and Counter the Financing of Terrorism
(CFT) compliance frameworks has grown ever more challenging. Not only must firms be able to implement risk-based assessments that are proportional to the size and nature of a firm’s activities, they must also ensure that these systems
can seamlessly integrate third party systems in order to provide effective monitoring of AML and CFT risks.
This training course has been specifically designed to provide a firm’s compliance and front office employees with highly comprehensive training on AML global trends and challenges, as well as a thorough review of money laundering methods
and ways of concealing beneficial ownership. By attending the training course individuals will be thoroughly trained on global money laundering techniques and will be equipped to be able to
more effectively carry out internal client AML and CFT checks and risk assessments. The training course provides practical and interactive training combined with contextual case studies
to exemplify global AML and CFT practices.
This new and highly unique Central Counterparty (CCP) interoperability training course seeks to provide attendees with comprehensive training in the latest cutting-edge areas pertaining to CCP interoperability arrangements. The training course seeks to draw from a broad range of sources in order to ensure that attendees are expertly guided through all the latest legal, financial, operational, and technological issues governing CCP interoperability arrangements throughout the European Union (EU).
The training course will not only cover existing legal frameworks under the European Market Infrastructure Regulation (EMIR), but also best practices governing interoperability arrangements. It will identify the range of advantages and operational risks relating to interoperability and will also benchmark financial instruments markets in order to review the feasibility of implementing interoperability arrangements in those markets.
The harmonisation and standardisation of interoperability arrangements has been proposed by industry participants as a way forward for implementing effective interoperability arrangements. The course will propose what a European Convention on CCP Interoperability might look like in practice, and how Distributed Ledger Technology (DLT) Platforms could facilitate more efficient and effective interoperability arrangements in the future.
Article 1 of the Banque du Liban Basic Circular no. 128 (Beirut, January 12, 2013) (the Circular) states that Banks and Financial Institutions (BFIs) must establish a Compliance Department (CD) comprising of: (1) a Legal Compliance Unit; and (2) an Anti-Money Laundering (AML)/Counter the Financing of Terrorism (CFT) Compliance Unit (AML/CFT Compliance Unit).
Article 3 of the Circular specifies that the Head of the Legal Compliance Unit must have the required competences and hold, at least, a law degree; it must also have the required knowledge and expertise in the field of banking and financial services laws and legislations in force in Lebanon and in any country hosting the affiliates of the bank or financial institution, in addition to the required knowledge in banking and financial activities.
This training course has been specifically designed to provide the required knowledge and expertise relating to countries hosting the affiliates of Lebanese banks or financial institutions located within the European Union (EU).
This unique and innovative training course will train attendees in a very broad range of regulatory compliance frameworks that govern Lebanese affiliate BFIs operating in the European Union (EU). On the first day, the first two sessions will provide extensive coverage of EU AML/CFT operational frameworks as well as key AML/CFT areas, such as risk-based approach to money laundering, undertaking extensive due diligence, and AML/CFT policies, conduct risk, and reputational risk and financial damage. The next two sessions will cover the revised Markets in Financial Instruments Directive (MAD 2) and the Market Abuse Regulation (MAR) regulatory compliance frameworks. They will include a review of a range of new insider dealing and market abuse offences, new criminal sanctions and penalties, as well as market abuse prevention, monitoring, and detection. These sessions will also provide a review of a broad range of insider dealing and market abuse behaviours, as well as a select review of past case studies. On the second day, sessions 5 and 6 will provide extensive coverage of the new revised Markets in Financial Instruments Directive (MiFID II) and the Markets in Financial Instruments Regulation (MiFIR). This includes a review of the new market structure in place across the EU, MiFIR trade and transaction reporting, MiFID II suitability and appropriateness requirements, best execution, recording of telecommunications, and the unbundling of research commissions. The last two sessions will provide broad coverage of central counterparty (CCP) operational frameworks that are in place in the EU. This will include a review of the CCP clearing model, CCP operational practices, and CCP cleared products. In addition, the course will cover CCP operational risk and default risks, as well as providing attendees with a comprehensive understanding of recovery and resolution plans.
هذه الدورة التدريبية المكونة من يومين والمقدمة للمستوى المتوسط إلى المتقدم ستوفر للمندوبين فهما شاملا للقانون الأمريكي الجديد الامتثال الضريبي للحسابات الأجنبية (FATCA)، وذلك من خلال الجمع بين النظري والعملي وأيضا من خلال إدراج عناصر التعلم التفاعلي. وتهدف الدورة إلى إزالة الغموض عن تعقيدات كل من قانون (FATCA) وإطارات معيار التقارير المشترك (CRS) لمنظمة التعاون والتنمية في الميدان الاقتصادي OECD. وبالطبع فإن المدرب الخبير المسؤول عن الدورة سوف يضمن أن المندوبين قد فهموا تماماً التأثير التشغيلي الذي سيكون لكل من (FATCA) و (OECD CRS) على المؤسسات والعملاء، فضلاً عن توجيه المندوبين من خلال عمليات التكيف الضرورية، وحلول الامتثال، وتعقيدات فهم الطريقة التي تشتغل بها (FATCA) و (OECD CRS) في جميع أنحاء العالم.
Thomson Reuters and Storm-7 Consulting jointly bring to you a new series of FATCA and the OECD Common Reporting Standard training courses scheduled across the Middle East in 2018. These highly unique events seeks to provide attendees with an unparalleled opportunity to receive expert FATCA and the OECD CRS regulatory compliance training, as well as being given the opportunity to view Thomson Reuters OneSource regulatory compliance and reporting technology solution. Attendees will be able to discuss a range of operational and strategic issues that may be affected firms with Storm-7 Consulting and Thomson Reuters experts. In addition to receiving a highly comprehensive range of FATCA and the OECD CRS training materials, attendees will come away with much deeper insight into FATCA and the OECD CRS compliance technologies. These new series of events are being offered at a highly discounted price and will provide firms with unprecedented networking opportunities. The 2018 scheduled is listed below.
MALTA
Monday 19th February 2018
Tuesday 20th February 2018
BAHRAIN
Sunday 25th February 2018
Monday 26th February 2018
SAUDI ARABIA
Wednesday 7th March 2018
Thursday 8th March 2018
DUBAI
Sunday 11th March 2018
Monday 12th March 2018
ABU DHABI
Tuesday 13th March 2018
Wednesday 14th March 2018
LEBANON
Monday 19th March 2018
Tuesday 20th March 2018
QATAR
Monday 26th March 2018
Tuesday 27th March 2018
CYPRUS
Monday 2nd April 2018
Tuesday 3rd April 2018
KUWAIT
Tuesday 17th April 2018
Wednesday18th April 2018
The MiFID II: Operational Compliance at The Shard training course is a unique and highly personalised training course that seeks to provide attendees with a blend of new strategic and operational insights into the new MiFID II framework. The sessions are highly tailored to the individual attendees as there are a limited number of places available the course allows more interactive discussions between the experts and the attendees. The pre-event MiFID II questionnaire allows us to more precisely identify areas of interest and to increase focus on their particular areas.
Storm-7 Consulting present the first in a new series of comprehensive and in-depth market research reports covering new regulatory compliance frameworks. This first report covers the substantive MiFID II ARM obligations as well as providing a review of existing and new MiFID II ARM technology offerings.
This two day intermediate to advanced training course will provide delegates with a comprehensive understanding of the new United States Foreign Account Tax Compliance Act (FATCA) requirements, by combining theory with practice and by incorporating interactive learning elements. The course aims to demystify the complexity of both FACTA and the OECD Common Reporting Standard (CRS) frameworks. The course Expert Trainer will ensure that delegates fully understand the operational impact that FATCA and the OECD CRS will have on the business and on clients, as well as guiding delegates through necessary adaptation processes, compliance solutions, and the complexities of understanding the way the FATCA and OECD CRS frameworks operate around the world.
This new and unique conference will provide delegates with a comprehensive understanding of central counterparty (CCP) clearing models and operational frameworks in the United States (U.S.). Delegates will receive in depth instruction on the U.S. CCP regulatory framework governed by the U.S. Securities and Exchange Commission (SEC), the U.S. Commodity and Futures Trading Commission (CFTC) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Delegates will be able to practically compare a range of key issues affecting CCP offerings in the U.S. The conference will also provide deep coverage of margining practices, clearing models and agreements,operational risks, and risk management frameworks affecting CCPs. Delegates will also be guided through the intricacies of effective CCP Recovery and Resolution Plans, and CCP Default Management, Recovery and Continuity Frameworks.
This new and unique two day conference
will provide delegates with a comprehensive
understanding of central counterparty (CCP)
clearing models and operational frameworks in
the European Union (EU). Delegates will receive
in depth instruction on the EU CCP regulatory
framework governed by the European Securities
and Markets Authority (ESMA) and the European
Market Infrastructure Regulation (EMIR).
Delegates will be able to practically compare
a range of key issues affecting CCP offerings in
the EU. The conference will also provide deep
coverage of margining practices, clearing models
and agreements, operational risks, and risk
management frameworks affecting CCPs. Finally,
delegates will be guided through the intricacies
of effective CCP Recovery and Resolution Plans,
and CCP Default Management, Recovery and
Continuity Frameworks.
How to Obtain Permanent Residency in the NetherlandsBridgeWest.eu
You can rely on our assistance if you are ready to apply for permanent residency. Find out more at: https://immigration-netherlands.com/obtain-a-permanent-residence-permit-in-the-netherlands/.
Synopsis On Annual General Meeting/Extra Ordinary General Meeting With Ordinary And Special Businesses And Ordinary And Special Resolutions with Companies (Postal Ballot) Regulations, 2018
A "File Trademark" is a legal term referring to the registration of a unique symbol, logo, or name used to identify and distinguish products or services. This process provides legal protection, granting exclusive rights to the trademark owner, and helps prevent unauthorized use by competitors.
Visit Now: https://www.tumblr.com/trademark-quick/751620857551634432/ensure-legal-protection-file-your-trademark-with?source=share
Car Accident Injury Do I Have a Case....Knowyourright
Every year, thousands of Minnesotans are injured in car accidents. These injuries can be severe – even life-changing. Under Minnesota law, you can pursue compensation through a personal injury lawsuit.
NATURE, ORIGIN AND DEVELOPMENT OF INTERNATIONAL LAW.pptxanvithaav
These slides helps the student of international law to understand what is the nature of international law? and how international law was originated and developed?.
The slides was well structured along with the highlighted points for better understanding .
Responsibilities of the office bearers while registering multi-state cooperat...Finlaw Consultancy Pvt Ltd
Introduction-
The process of register multi-state cooperative society in India is governed by the Multi-State Co-operative Societies Act, 2002. This process requires the office bearers to undertake several crucial responsibilities to ensure compliance with legal and regulatory frameworks. The key office bearers typically include the President, Secretary, and Treasurer, along with other elected members of the managing committee. Their responsibilities encompass administrative, legal, and financial duties essential for the successful registration and operation of the society.
ALL EYES ON RAFAH BUT WHY Explain more.pdf46adnanshahzad
All eyes on Rafah: But why?. The Rafah border crossing, a crucial point between Egypt and the Gaza Strip, often finds itself at the center of global attention. As we explore the significance of Rafah, we’ll uncover why all eyes are on Rafah and the complexities surrounding this pivotal region.
INTRODUCTION
What makes Rafah so significant that it captures global attention? The phrase ‘All eyes are on Rafah’ resonates not just with those in the region but with people worldwide who recognize its strategic, humanitarian, and political importance. In this guide, we will delve into the factors that make Rafah a focal point for international interest, examining its historical context, humanitarian challenges, and political dimensions.
Basel III NSFR Liquidity Framework: Practical Implementation Requirements
1. 4th Annual
Practical Funds Transfer Pricing and Balance Sheet Management Forum
17th September 2014, London, UK
NSFR LIQUIDITY FRAMEWORK:
Practical Implementation
Requirements
IMPLEMENTATION REQUIREMENTS TO ADAPT
TO NEW NSFR LIQUIDITY PARAMETERS
WORKSHOP
Rodrigo Zepeda
Independent Consultant
2. Section 1:
Diversified funding: Problems with steering towards long-term stable
funding
Section 2:
Analysing the best internal mechanism for managing new liquidity
requirements
4. “Assuming a 50
percent retained
earnings payout ratio
and nominal annual
balance-sheet growth
of 3 percent through
2019, capital
requirements in
Europe are expected
to increase to about
€1.2 trillion, short-term
liquidity
requirements to €1.7
trillion, and long-term
funding needs to
about €3.4 trillion.”
(McKinsey 2010, p.1)
4
“The task is
monumental
however. Banks face
a significant
challenge merely to
achieve technical
compliance with the
new rules and ratios,
let alone to reorient
the institution for
success.”
(McKinsey 2010, p.2)
2
5. What is Long Term Stable Funding?
GLOBAL FINANCIAL CRISIS FUNDING
Wholesale Funding
• Cheaper wholesale funds with shorter maturities.
• Funds secured against collateral (e.g. securitized
debt or repurchase agreement transactions).
• Increasingly interconnected bank and non-bank
financial system, drying up liquidity and
triggering calls on collateral.
• Not sufficiently monitored.
• e.g. Interbank loans.
• e.g. Brokered deposits.
• e.g. Repurchase agreements (“Repos”).
• e.g. Commercial paper.
5
BASEL III FUNDING
LongTerm Stable Funding (“LTSF”)
• Customer deposits.
• Regulatory capital (equity).
• Debt with maturities of more than one year.
• Deposits with maturities of less than one year (but
expected to continue to be held in a stress scenario).
• Preferred stock.
• Covered bonds.
• Domestic and international capital markets.
• Diversified funding, but not necessarily all maturity
matched (i.e. limited maturity transformation).
3
6. Problems faced by Banks pre-Basel III
Senior Supervisors Group (“SSG”) Findings (SSG, 2009):
• Only 7 out of 20 major global financial firms stated they had fully aligned
liquidity risk with transfer pricing practices (13 firms were stated to be partially
aligned).
• Managers acknowledged that if robust Funds Transfer Pricing (“FTP”)
practices had been in place which factored in liquidity as well as funding risks,
firms would not have carried the significant levels of illiquid assets and off-balance
sheet (“OBS”) risks that led to sizeable losses
• Many firms’ information technology (“IT”) infrastructure was inadequate to
accurately monitor risk exposures.
• It was noted that firms need to re-examine the priority that was traditionally
given to revenue-generating businesses over reporting/control functions.
6
3
7. Impact of the New Basel III Liquidity Risk Paradigm
McKinsey Report Findings (McKinsey, 2010):
• By 2019 European banking sector will (absent any mitigating actions) need:
• €1.1 trillion of additionalTier 1 capital;
• €1.3 trillion of short-term liquidity; and
• €2.3 trillion of long-term funding.
• By 2019 US banking sector will (absent any mitigating actions) need:
• US$870 billion (€600 billion) of additionalTier 1 capital;
• US$800 billion (€570 billion) of short-term liquidity; and
• US$3.2 trillion (€2.2 trillion) of long-term funding.
• By 2019 pre-tax Return on Equity (“ROE”) of European banks will decrease by 3.7-4.3 percentage points (“pp”) (from
pre-crisis levels of 15%) (there will be a gradual decline in ROE, 2013 (-0.3 pp), 2016 (-2.1 pp)):
• 0.8pp – capital quality;
• 1.3pp – increased risk weighted-assets (“RWA”);
• 1.3pp – increased capital ratios (made up of 0.3pp (new minimum ratios), 0.8pp (additional cushion), and 0.2pp (further national
discretions));
• 0.1pp – leverage ratio;
• 0.2pp – expense of holding more liquid assets; and
• 0.6pp – cost of holding more long-term funding.
[Assessment based on an analysis of the balance sheets of the top 45 European banks as of their most recent filings at November 2010]
7
3
8. Impact of the New Basel III Liquidity Risk Paradigm
Deloitte European Bank FTP Survey Findings (Deloitte, 2014):
• Larger banks displayed more advanced methodologies and more integrated processes and systems; smaller banks had more limited
methodologies and low levels of integration; but many had a long way to go to meet Liquidity Transfer Pricing (“LTP”) requirements.
• Many banks did not estimate the Liquidity Asset Buffer in their FTP frameworks.
• Many banks still lacked independent validation of their FTP models (e.g. 40% did not have it carried out by risk area).
• Only the biggest banks adopted behavioural adjustments (from Internal Rate of Return (“IRR”) and liquidity risk models) which
reflected the behavioural characteristics of financial instruments and contractual profiles of transactions involved.
• Weaknesses in banks’ FTP infrastructure included: (1) manual processes; (2) limited granularity of single components; and (3) poor
integration.
[Deloitte survey involved functions (Treasury, ALM, Risk and PerformanceManagement) of 15 financial institutions from the UK, France, Germany, Italy, the Netherlands, and Greece]
BCBS andCommittee of European Banking Supervisors (“CEBS”) (2010) Findings:
• Group 1 banks have an estimated average LCR of between 67% (CEBS, 2010) and 83% (BCBS, 2010).
• Group 2 banks have an estimated average LCR of between 87% (CEBS, 2010) and 98% (BCBS, 2010).
• Group 1 banks have an estimated average NSFR of between 91%(CEBS, 2010) and 93% (BCBS, 2010).
• Group 2 banks have an estimated average NSFR of between 94% (CEBS, 2010) and 103% (BCBS, 2010).
[BCBS findings based on a survey of 94 Group 1 banks and 169 Group 2 banks; CEBS findings based on a survey of 50 Group 1 banks and 196 Group 2 banks]
8
3
9. Basel III Effects on Risk Coverage
9
Anticipated effects of the changes to risk
coverage (Linklaters 2011, p.3)
Anticipated effects of the changes to risk
coverage (Accenture 2011, p.5)
3
10. The New Basel III Regulatory Landscape
Basel II Implications
• Increased capital reserves, liquidity buffers and funding costs under the Basel III framework.
• New global minimum liquidity standards and two new liquidity ratios, i.e. the Liquidity Coverage Ratio
(“LCR”) and the Net Stable Funding Ratio (“NSFR”).
• Increased need for equity funding in the market.
• Decreased availability of funding by central banks.
• Increased capital requirements for counterparty credit risks for (1) derivatives; (2) securities financing; and
(3) repo transactions.
• Some bank lobbyists are claiming Basel III NSFR will increase repo transactional costs by more than 850%
(from 7 bp to 67 bp) (Becker, 2014).
• Hedge funds face higher prime broker charges under Basel III (Devasabai, 2014).
• Banks exiting or scaling back from aircraft financing or leasing operations (e.g. BNP Paribas, Société
Générale, and Royal Bank of Scotland) (loans with maturities of between 6-12 years) (Watt, 2012).
10
3
11. GENERAL Problems With Steering Towards LTSF
• Banks are still struggling to return to pre-crisis ROE levels.
• Banks have additional high compliance costs, i.e. EMIR, Dodd-Frank, SEPA,AML/CTF, etc.
• Decreased ROE and overall profitability levels:
• Banks must adhere to lower levels of leverage under Basel III (and must include OBE when calculating leverage);
• Minimum solvency ratio of 7% Core Tier 1 Capital (2019), but with changes in Regulatory Capital and RWA
necessitating increased capital or decreased lending leading to crowding out effects on capital;
• Increased bank equity capital (4.5% common equity Tier 1 ratio) will reduce small and medium-sized (“SME”)
lending capacity and overall SME ROE (higher risk, higher capital);
• Mandatory conservation and countercyclical buffer; and
• Adherence to new monitoring metrics.
• General reduced lending capacity or credit availability, and/or increased cost of credit.
• Likely overall ‘crowding out’ of smaller and weaker banks.
11
3
12. SPECIFIC Problems With Steering Towards LTSF
• Change in sourcing demand from short-term funding to long-term funding arrangements.
• Likely negative impact on pricing (higher) and margins (lower) in the short-term (as banks adjust).
• NSFR assets: increasing HQLA holdings or shortening loan maturities (<1 year) will significantly
increase costs and reduce product offerings.
• NSFR liabilities: increased demand for long-term wholesale funding making it more costly (squeezing
smaller banks), and there will now be increased aggressive competition for retail deposits.
• Likely significant pressures on operating capacity as pre-existing high volumes of specific product
segments are likely to translate to increased liquidity operating costs.
• Likely significant changes in business operating models of some banks needed.
• Potential for international regulatory arbitrage (e.g. US Basel III proposals stricter).
• Basel III is not a panacea for all structural banking problems, it is likely the beginning not the end, and
future proposals such as ‘ring-fencing’ may make liquidity rules even more complex or expensive.
12
3
13. Problems With Steering Towards LTSF
13
• Increased allocation of capital to larger trading books.
• Changing tenor structures (greater than 7-10 years).
• Capital efficiency measures.
Financial
• Adjusting or changing existing business models.
• Evaluating and improving capital and liquidity management practices.
• Restructuring of balance sheet.
Operational
• Integrating new risk management standards and regulatory requirements
into existing or new IT architecture and reporting systems.
• Auditing (new or required) of data availability, quality, and completeness.
Technological
•Maturity transformation practices are affected and must be re-optimised.
• Exiting from unprofitable product lines.
• Questioning what drives balance sheet consumption.
Strategic
• Loan agreement terms.
• Group reorganisations.
• Disposing of part/whole portfolios or operating entities.
Legal
4
14. Changes in Funding Structures
Basel III transition challenges to stability (IMF, 2013):
• Advanced economies rely more on wholesale funding, whereas emerging market economies (and Japan) have large retail
deposit bases, and are much more homogenous in their use of funding instruments.
• Banks have diverse funding structures that change only gradually over time.
• Bank funding structures are affected mainly by bank-specific factors and to a lesser extent by macrofinancial and market
variables.
• The overall (ambiguous) effect on funding costs will depend on:
• the proportion of various types of funding instrument;
• relative funding costs;
• level of equity capital; and
• underlying riskiness of banks’ assets (encumbered and unencumbered).
• Basel III regulatory reforms can affect bank funding structures positively and negatively, so reforms need to be calibrated to
ensure that there is not an overuse of secured funding or banks excessively encumber assets.
[IMF empirical study based on liability structure (equity, non-deposit liabilities, deposits) and loan-to-deposit ratio (indicates need for wholesale funding ) for 751 banks, applying
a dynamic panel regression with bank-specific fixed effects for a large set of countries]
14
4
15. Changes in Funding Structures
Breakdown of Bank Liabilities (IMF 2013, p.108)
15
Customer deposits
At Par/On Demand deposits – high liquidity risk owing to
maturity mismatch (and runs), but retail deposits relatively stable
in practice (may be covered by deposit guarantee scheme).
Other deposits – i.e. uninsured, foreign currency, internet
banking, non-residents, corporations, money market fund, high-net-
worth individuals, are less stable.
Wholesale funding
Encumbered (assets secured as collateral) – designated for
payment of secured creditors; senior unsecured funds may rank
equal to depositors or belowdepositors (depends on country).
Encumbered (short-term secured funds) – repos; swaps;
asset-backed commercial paper.
Unencumbered (short-term unsecured funds) – interbank
loans; commercial paper (“CP”); wholesale certificates of deposit
(“CDs”).
Long-term funds - bonds; different securitizations (e.g.
covered bonds, private-label mortgage-backed securities).
Regulatory capital (retail/wholesale)
Common equity, certain types of subordinated debt – highest
quality is “Common Equity Tier 1” (“CET1”). Subordinated debt
types (paid after other debt holders) include contingent
convertible debt (“CoCos”), preferred shares, and perpetual
bonds which qualify as additionalTier 1 andTier 2 capital.
4
16. Changes in Funding Structures
Banks’ Long-Term Wholesale Funding across
Major Economies and Regions (as of 31 July 2013)
(IMF 2013, p.109)
Determinants of Bank Funding (Relative sizes
of factors; percentage points) (IMF 2013, p.112)
Sources: Bloomberg, L.P.; and IMF staff estimates.
Note: CA= current account, cap. =capitalization; FX = foreign exchange; LDV = lagged-dependent variable; Nil share = net
interest income in percent of operating income. Regulation and disclosure are the first and second principal component
scores, derived from four World Bank indicators of regulatory and institutional quality. Figures show the economic
relevance of bank characteristics and macrofinancial regulatory factors on bank funding through equity, deposits, and debt
(as a percent of total assets), and on loan-to-deposit ratios based on panel estimations for all banks, advanced economy
banks, emerging market economy banks (from developing Asian and central and eastern Europe), and global and domestic
systematically important banks. Economic relevance is computed as coefficients multiplied by 1 standard deviation of each
variable (averaged across banks). Variables shown are chosen using the general-to-specific selection method, which starts
with a general regression model and narrows it down to a model with only significant variables.
16
2
17. Analysing the best internal
mechanism for managing new
liquidity requirements
SECTION 2
17
18. Overview of New Basel III Operational Elements
18
Increasing quality, consistency and
transparency of the capital base;
increasing Tier 1 Capital,
harmonizing Tier 2 Capital
instruments, and eliminating Tier 3
Capital instruments
Raising capital requirements
Introducing LCR and NSFR, and a
new common set of monitoring
(trading book, complex
securitizations); capital for
counterparty credit risk; capital
charges for credit valuation
adjustment (CVA); and establishing
standards for central counterparties
(Introducing Leverage Ratio to new CCPs) and collateral management
risk-based Basel framework
tools
Introducing countercyclical buffer
and capital conservation buffer;
addressing systemic risk (and
interconnectedness); and promoting
forward looking provisioning and
dampening cyclicality parameters
(Accenture 2011, p.2)
Regulatory Capital
Risk Coverage
Leverage Ratio
Procylicality
Liquidity Standards
3
19. Responses to Managing Basel III: (KPMG, 2011)
“Stronger banks with a higher NSFR will be able to influence market pricing of assets.
Weaker banks will see their competitiveness reduced, which will potentially decrease the
level of competition” (KPMG 2011, p.11).
• Banks need to consider improving their performance of current internal assessment
methodologies – credit risk (ratings-based) and market risk (models).
• Banks need to consider reorganising legal entities in order to optimise the impact of capital
deductions.
• Banks need to consider increasing active balance sheet management and hedging
strategies.
• Banks need to consider redesigning businessmodels and reviewing portfolio strategies.
• Banks will very likely have to increase proportion of wholesale/corporate deposits (maturities
>1 year), due to continuing limited market demand.
19
3
20. Responses to Managing Basel III: (Accenture, 2011)
For the NSFR banks must consider whether: (1) they must increase HQLA; (2) obtain more long-term stable sources of
funding; and (3) improve liquidity risk management systems.
1. Operational Responses
• Banks need to consider (1) processes; (2) methods; and (3) data.
• e.g. improve liquidity risk management (i.e. stress testing, contingency funding plans); closer integration of risk and
finance functions; reducing credit exposure (i.e. limits, credit approval processes); RWA optimization; and subsidiary
integration through group-wide risk and capital management standards.
2. Tactical Responses
• Banks need to consider (1) pricing; (2) funding; and (3) asset restructuring.
• e.g. increasing HQLA levels; changing funding mix and liquidity reserves to long-term debt and extending maturity of
deposits; reducing total exposure (risk and profitability); shifting to higher-value clients or less risky portfolio segments.
3. Strategic Reponses
• Banks need to consider (1) business model; (2) group organisation; and (3) equity.
• e.g. more active balance sheet management; issuing new capital; more active client management (e.g. segmentation);
strategic cost reductions; changing business model or group structure; changing liquidity risk and funding strategies.
20
3
21. Responses to Managing Basel III: (McKinsey, 2010)
• Improve capital
efficiency
• Identify and ameliorate
subpar liquidity and
funding management
No-regret
moves
Balance-sheet
restructuring • Product design/mix
• Capital quality and
deductions
• Balance-sheet
management
• Reduced long-term
funding costs
• Customer mix
• Geographical mix
• Risk transfer
• Cost and pricing
Business-model
adjustments
21
3
22. Financial Conduct Authority (“FCA”)‘Liquidity Standards’
• BIPRU 12.3 (Liquidity Risk Management)
• A firm must have in place robust strategies, policies, processes and systems that enable it to identify, measure, manage and
monitor liquidity risk over an appropriate set of time horizons, including intra-day, so as to ensure that it maintains adequate levels
of liquidity buffers. These strategies, policies, processes and systems must be tailored to business lines, currencies, branches and
legal entities and must include adequate allocation mechanisms of liquidity costs, benefits and risks [12.3.4 R].
• The strategies, policies, processes and systems referred to in [12.3.4 R] should include those which enable it to assess and
maintain on an ongoing basis the amounts, types and distribution of liquidity resources that it considers adequate to cover: (1) the
nature and level of the liquidity risk to which it is or might be exposed; (2) the risk that the firm cannot meet its liabilities as they
fall due [12.3.4AG].
• A firm must, taking into account the nature, scale and complexity of its activities, have liquidity risk profiles that are consistent
with and not in excess of those required for a well-functioning and robust system.
• In complying with [12.3.4 R], a firmmust ensure that it has access to funding which is adequately diversified, both as to source and
tenor [12.3.29 R].
• In relation to all significant business activities, a firm should ensure that it accurately quantifies liquidity costs, benefits and risks
and fully incorporates them into: (a) product pricing; (b) performance measurement and incentives; and (c) the approval process
for new products [12.3.4AG].
• A firm should ensure that liquidity costs, benefits and risks are clearly and transparently attributed to business lines and are
understood by business line management.
[Prudential sourcebook for Banks, Building Societies and Investment Firms (“BIPRU”), Chapter 12]
22
3
23. Internal Mechanisms for Managing New Liquidity Requirements
• Ideal basic solution for smaller BFIs that are limited in size or distribution, or have a narrow
range of products in their portfolios or balance sheets, and have already achieved 100% (or
more) compliance with LCR and NSFR ratios. Automated solutions are able to adjust existing
financial reporting software or systems.
23
(1) Manual/Automated LCR/NSFR Reporting
• An installed and integrated LCR forecasting and reporting software solution, but without NSFR
capabilities. This may reflect the situation in many banks and financial situations which are
awaiting finalisation of the Basel III NSFR rules.
(2) LCR Software (Reporting/Steering)
• An fully installed and integrated LCR and NSFR forecasting and reporting software solution. This
will allow banks and financial institutions to start adjusting LTSF strategies now, and allowing
them to ‘fine tune’ settings with the finalised Basel III NSFR rules.
(3) LCR/NSFR Software (Reporting/Steering)
• Many banks and financial institutions may have developed pooled or MM FTP systems, but have
not yet integrated LCR and/or NSFR reporting and steering functions. These functions may be
currently undertaken separately, either manually or automatically.
(4) Separate FTP and LCR/NSFR Reporting/Steering
• This solution has managed to integrate FTP and LTP systems, but is still utilising separate LCR
and/or NSFR reporting and/or steering functions, which may be undertaking manually or
automatically.
(5) FTP/LTP and LCR/NSFR Reporting/Steering
• This solution has managed to fully integrate LTP systems into FTP systems in a centralised way,
and has also fully integrated LCR and NSFR reporting and steering functions, allowing banks to
undertake LCR/NSFR optimisation strategies whilst considering comparative transfer prices.
(6) Fully Integrated FTP/LTP/LCR/NSFR Solution
3
24. Manual/Automated Basel III (LCR/NSFR) Reporting
• Discuss Basel III Monitoring Reporting Template (Version 2.6.1) (Bank of
Luxembourg) – separate Microsoft Excel sheet.
24
2
26. Oracle FSFTP, FSLRM: Company Offering
Oracle FSFTP
• Uses Matched Maturity (“MM”) FTP to enable accurate assessment of profitability along
product, channel, and business lines.
• Centralises IRR, and calculates option costs, e.g. prepayments, impact of rate caps and floors,
early redemption on deposits.
• Fully integrated with Oracle’s Financial Services Analytical Applications (shares common
customer account level data model) allowing accurate central control of pricing and
profitability.
• Provides 9 stochastic techniques:
• (1) Monte Carlo (pseudo-random numbers); (2) Monte Carlo (low discrepancy sequences); (3) Ho and Lee (TS); (4)
Merton (TS); (5) Vasicek (TS); (6) Extended Vasicek (TS); (7) Straight Line; (8) Cubic Spline; and (9) Quartic Spline.
• Provides 12 transfer pricing methods:
• (1) Cash Flow Weighted Term; (2) Cash Flow Zero Discount factor; (3) Cash Flow Duration; (4) Cash Flow Average
Life; (5) Caterpillar; (6) Moving Average; (7) Spread fromInterest Rate Code; (8) Spread from Note Rate; (9) Straight
Term; (10) Redemption Curve; (11)Weighted Average; (12) Unpriced Account.
26
1
27. Oracle FSFTP, FSLRM: Company Offering
Oracle FSLRM
• Can estimate a bank’s liquidity under normal and stressed business conditions; can identify and
manage liquidity threats by comparing liquidity gaps (under baseline assumptions and stress
conditions); and can focus on countering liquidity hotspots.
• Can define business assumptions based on multiple dimensions allowing banks to specify
business-as-usual (“BAU”) conditions (e.g. rollovers, run-offs, prepayments, asset value changes
or book growth, recoveries from delinquent accounts) at any required level of granularity
(contractual cash flows affected by absolute values or percentages).
• Can estimate LCR and NSFR ratios based on Basel III guidelines based on pre-specified
parameters such as liquidity horizon, liquidity haircuts, and funding factors.
• Can be used to specify and assign liquidity haircuts, available and required funding factors, and
can estimate the LCR and funding concentrations for each significant currency, product, and
counterparty.
27
1
28. Oracle FSFTP, FSLRM: Company Offering
28
LCR and NSFR and components are reported in line with Basel III requirements.
1/3
29. Oracle FSFTP, FSLRM: Company Offering
29
Detailed Bucket-Wise Gap report providing a multi-dimensional view of liquidity gaps including
currency, product, line of business, customer type, etc.
1/3
30. Oracle FSFTP, FSLRM: Company Offering
Detailed liquidity Gap Report after applying counterbalancing strategies to bridge liquidity gaps.
30
1/3
31. Advantages
• Oracle FSFTP and FSLRM seamlessly integrate data,
analytics, business rules, hierarchies, and reporting, to
allow superior risk, performance and strategic
management, customer insight, and compliance.
• Oracle FSFTP and FSLRM can be integrated at a very
core level owing to the common/shared data model
(including shared dimension attributes).
• Oracle FSFTP’s core strengths are scalability, ability to
accept data from any source, trustworthy results,
multidimensional reporting, and sophisticated analysis
capabilities.
• Oracle FSLRM is also designed to work with Asset
Liability Management systems already used by leading
global institutions (including Oracle Financial Services
Asset LiabilityManagement).
• Oracle FSLRM provides clarity on liquidity positions, and
allows BFIs to develop contingency funding plans that are
tailor-made to manage liquidity hotspots.
Disadvantages
• Oracle FSFTP is sophisticated, advanced, and
complex, and with a huge variety of transfer
pricing methods, add-on rates, and stochastic
methods for calculating option costs such as
Monte Carlo, Merton, and Cubic Spline, extensive
training and support may initially be required in
both pre-installation and post-installation phases.
• Oracle FSFTP and FSLRM are some of the most
advanced systems on the market, so they are
priced accordingly at the higher end of relevant
FTP and liquidity management software solutions
currently available.
• Oracle systems are often found in larger Tier 1
banking frameworks, and therefore design and
installation time frames for these types of systems
are typically much longer.
31
Oracle FSFTP, FSLRM: Evaluation
1
32. BESS Abacus LiMa: Company Offering
Background, Functionalities and Key Benefits
• BESS are a very well established company, which holds over 65% of the German market (i.e. banks
and financial institutions) for legal reporting software, and are expanding to other international
markets (i.e. Luxembourg, Romania, Sweden, and the United Kingdom).
• BESS have significant market operational experience, and prime examples of LCR/LiMa working
partnerships include ‘Commerzbank AG’ and the National Bank of Romania (LCR/NSFR data
gathering).
• BESS Abacus LiMa users can interconnect regulatory and business requirements, and can take
profit and loss effects (plus effects on RWA) into account.
• BESS Abacus LiMa offers a centralised data repository for legal reporting and economic steering
based on the same interface.
• Data is presented via a cockpit in a management-oriented form. The system enables the regulatory
as well as the economic examination of the liquidity risk on the basis of a standardised and
consistent database.
• Optimization of LCR (including different regulatory caps/limits) possible, as well as simulation of
cash flows and single positions such as high liquid assets.
32
1.5
35. BESS Abacus LiMa: Company Offering
35
User Interface
LCR 20-Days Forecast Simulation
1/3
36. Advantages
• ABACUS/DaVinci product can be used to provide
high quality data for international and national
reporting (e.g. CoRep, FinRep, Large Exposures,
Statistical Reporting, Leverage Ratio, LCR, NSFR).
• ABACUS/LiMa product can currently be used for
LCR forecasting and steering purposes, e.g. with
graphical charts produced for Single Deal and
Portfolio Simulation (single transactions or
aggregated data).
• ABACUS/LiMa product enhancements planned
for 2015 (Collateral Swap Simulation, Reporting
Engine, GUI Manager, and Backtesting Tools).
• ABACUS/LiMa used in conjunction with
ABACUS/Da Vinci is an ideal software solution
platform for banks and financial institutions that
do not believe implementing a full FTP system
would be cost-effective, but wish to have a near-comprehensive
Basel III and LCR reporting,
forecasting, and steering solution.
Disadvantages
• BESS do not currently offer a completely
integrated FTP and liquidity management
solution, BESS only focus on liquidity
management and reporting, not FTP.
• ABACUS/LiMa product does not currently offer
NSFR simulation capabilities. BESS are waiting
for the Basel III NSFR requirements to be finalised,
and they also note that German financial
institutions currently prefer to deal with the NSFR
through business modelling, rather than NSFR
scenario analysis.
• ABACUS/LiMa product does not currently offer
cash flow simulation with deterministic or
stochastic flows, but these developments are
listed as future development opportunities.
• Software operating literature is not
comprehensively offered in English language
translations yet.
36
BESS Abacus LiMa: Evaluation
1.5
37. Axiom EMPFTP: Company Offering
• Axiom’s EPMFTP calculates accurate FTP rates to view the value created by funds users, funds providers and
interest rate risk managers, with detailed and granular analysis, and the ability to apply external cost factors.
• Axiom’s EPMFTP utilises projected MM cash flows (at origination) to produce highly accurate FTP rates at the
customer level; the system calculates time and balance-weighted transfer funding rates for each cash flow strip.
• Axiom’s EPMFTP can:
• price the balance sheet;
• produce a range of analytical reports and processes (accessed via a finance-friendly Microsoft Excel® interface);
• drill down and analyse information by organisation, product, or officer;
• undertake incremental analysis which facilitates segmentation analysis at the product portfolio levels and by origination
month; and
• produce rate volume reports (i.e. detail spread income into days, spread, volume) and funding centre reports (net profit
and loss for all assets and crediting all liabilities).
• Axiom’s EPMFTP aims to provide analytical richness through the incorporating more detailed analysis of
margin results (e.g. credit score, risk rating, officer code, zip code, collateral code), and other analysis options
(e.g. segmentation, ranking, charting, drill through and derived calculations such as weighted averages).
37
1
38. Axiom EMPFTP: Company Offering
End-to-end integrated tools to
facilitate balance sheet monitoring
and planning, and align incentives with
planning.
Axiom’s EPMFTP multilayered dashboards provide banks and
financial institutions with a rich data repository from which to
draw financial, operational, or risk information.
38
0.5
39. Axiom EMPFTP: Company Offering
39
Historical Performance (PP1-x)
Analysis of a banking officer’s historical
pricing trends by product for any
designated year, can be compared to the
overall bank’s FTP spread for the same
product.
Prospective Performance (FP1-x)
Analysis of the principal runoff of the current portfolio
for any product and any officer, which can assist in the
budgeting process, i.e. determining new volumes and
rates needed to meet targets.
Current Performance (T0)
Facilitates analysis of pricing decision by
ranking of loan officers by volume
origination over x period, and by average
FTP Spread and net income effect (balance x
spread) booked for volumes.
0.5
40. Axiom EMPFTP: Company Offering
40
• Axiom EMPFTP offers mobile
dashboards which crucially make
critical performance information
available anywhere at any time.
• Axiom EMPFTP mobile dashboards
are available on all major operating
platforms, including tablets (e.g.
Apple iPad) and smartphones (e.g.
Apple iPhone and Android
BlackBerry).
• Axiom notes that end users can
interact with dashboards, spot trends,
conduct ad hoc analysis and make
timely, informed decisions regardless
of location, based on rich and highly
customizable performance data.
0.5
41. Advantages
• Axiom EPM offers an integrated financial
planning and decision support platform for banks
and financial institutions, providing them with
sophisticated planning, report and strategic
decision making tools and functions.
• Axiom EPMFTP offers both precision in
calculating FTP rates and deep and insightful
analytical reporting options, which leads to better
pricing decision overall.
• Axiom EPMFTP offers three time perspectives
(i.e. historical performance, current performance,
prospective performance) for a more holistic view,
facilitating analysis of pricing consistency over
time, as well as helping understand the impact of
maturing spreads on portfolio performance.
• Axiom financial software solutions offer rich and
robust enterprise dashboards from which banks
and financial institutions can visualise and manage
data and components.
Disadvantages
• Axiom EMP does not currently offer
comprehensively integrated LTP and
LCR/NSFR calculation, forecasting, and
reporting solutions.
• Integrating Axiom EPMFTP software
solutions with other LCR/NSFR software
solutions may require significant planning
and customisation.
• The comprehensive nature of Axiom
EMPFTP’s FTP analysis means that the
software packages will require significant
and comprehensive training in order to be
able to get the most out of FTP analytics,
e.g. including and calculating the impact of
the time dimension.
41
Axiom EPMFTP: Evaluation
1.5
42. 42
MORS TPM and LM: Company Offering
• MORS TPM and MORS LM can be used in conjunction with each other and with other software
offerings, such as MORS ‘Balance Sheet Manager’, for 3600 strategic management evaluation of e
current and future FTP and liquidity situation.
• MORS TPM is transparent, agile, and informative, and can cover all cost layers (i.e. CLC, term
liquidity/funding premium, basis/hedging costs, base rate).
• MORS TPM pricing is based on an infinite amount of user-defined curves; with CLC included (e.g.
Liquidity buffer cost); complete drill-down and monitoring of FTP transactional effects; and
dynamic alteration of FTP levels for any product, business line, client segment.
• MORS LM combines internal liquidity metrics and scenarios with Basel III LCR regulatory
requirements, which allows identification of funding gap, funding mismatch, concentration risk,
and stress testing for monitoring, forecasting, and steering purposes.
• MORS LM allows for liquidity buffer management (unencumbered, encumbered), OBS contingent
exposure follow-up and cash flow monitoring (net, gross) by counterparty (intra-day liquidity).
1
43. MORS TPM and LM: Evaluation (cont)
MORS is Different
It offers multi-dimensional, real-time,
drill down capabilities, in
order to facilitate balance sheet
forecasting, steering and
optimisation – the result is
customer profitability.
Example of MORS Transfer Pricing Calculator
43
0.5
44. 44
MORS TPM and LM: Company Offering
Example of
MORS LCR
Breakdown
0.5
45. 45
MORS TPM and LM: Company Offering
Example of
MORS LCR
Liquidity
Scenario
Cashflow
Details
0.5
46. 46
MORS TPM and LM: Company Offering
Example of MORS NSFR Balance Sheet Scenario Set-up
0.5
47. 47
MORS TPM and LM: Company Offering
Example of MORS NSFR Balance Sheet Scenario Totals/Ratio
0.5
48. 48
MORS TPM and LM: Company Offering
MORS Scenario Analysis Tools
0.5
49. MORS TPM and LM: Evaluation
Advantages
• MORS has decades of experience in developing and
refining market leading middle office and front office
integrated software functions.
• MORS offers a comprehensive range of fully integrated
treasury and risk management solutions, i.e. TPM, LM,
Trading Book, Balance Sheet Manager, Treasury Front &
Middle, and Multi Site Manager.
• MORS TPM and LM offer real-time FTP and liquidity
monitoring capabilities which can be dynamically
interfaced with the majority of financial data providers
such as Reuters and Bloomberg.
• MORS TPM liquidity costs can be determined based on
maturity , rate bases, currency, business unit,
counterparty type, product or any other classification
criteria in order to provide an efficient steering tool.
• MORS LM allow LCR forecasting, steering, and
optimisation with Basel III metrics, or other RWA settings
or haircuts available through the application of different
rule mapping profiles.
Disadavantages
• MORS software has a very high dominance in the Nordic
banking markets (e.g. Stockholm, Copenhagen, Oslo,
Helsinki) and has extended across Europe (e.g. Warsaw),
but has yet to reach high market shares in global markets
(e.g. New York, Moscow, Singapore, Hong Kong,
Shanghai).
• MORS software solutions have been primarily installed
across a large number of Tier 2 banks, soMORS has yet to
compete on a global level for installation within Tier 1
banks.
• MORS software solutions are generally installed in a
short-time frame as they traditionally rely on interfacing
existing data connections. Therefore building completely
new FTP, liquidity and risk management systems may
require longer installation and post-installation
timeframes.
• MORS software solutions have been designed to work
most efficiently as a comprehensive set of treasury and
risk management solutions, so may possibly not work as
effectively when integrated with other custom-built
software applications.
49
1
50. Moody’s LRMC and RC: Company Offering
Moody’s LRMC and RC
• Moody’s LRMC enables the quantification of liquidity risk and management of stress-testing
capabilities, e.g. quantification of sources and uses of funds, developing cashflow-based
liquidity metrics, and centralising liquidity inputs such as capital market and origination data.
• Moody’s LRMC assesses daily cash flows; examines liquidity risk exposures; and monitors
liquidity risk via dynamic dashboard which offers key customised management reports, i.e.
LCR/NSFR, RWA, forecast income statement and balance sheet.
• Moody’s RC has multi-currency capacity; parameter deal mapping; balance sheet strategy
capabilities; stress testing (e.g. scenario simulation, funding stress testing); and custom asset
liability/FTP/liquidity management, e.g. funding and behavioural models, and contingent
liquidity and buffers.
• Moody’s offers comprehensive enterprise risk management via its ‘Liquidity Risk Solution
Family’, which includes RiskConfidence ™(IRR, FTP), RiskAuthority™(regulatory capital),
Scenario Analyzer (stress testing models), and Regulatory Reporting Module (regulatory
reports), RiskFoundation™ (optimized platform).
50
1
51. Moody’s LRMC and RC: Company Offering
Ability to define transfer price settings at the account or
Parameter Deal Mapping levels. MM FTP calculations
performed at instrument level (including deal level
adjustments to base transfer pricing curve).
51
1
52. Advantages
• Moody’s LRMC facilitates the calculation of LCR
and NSFR and all the relevant risk indicators need
for populating Basel III Pillar 1 and 3 risk reports.
• Moody’s LRMC allows banks to manage multi-jurisdictional
liquidity regulatory requirements for
over 50 jurisdictional supervisors.
• Moody’s LRMC facilitates centralised liquidity risk
management; advanced cash flow deposit
modelling (non-maturing deposits); high
performance grid computing; and comprehensive
advisory services.
• Moody’s RC manages liquidity risk (LCR, NSFR,
and liquidity gaps and buffers); allows liquidity
modelling; computes net interest income and
economic value of equity; defines multi-factor
behaviour models; and integrates and managers
maturity-matched FTP capabilities.
Disadvantages
• Moody’s LRMC and RC offer top-of-the-line
operating software so will be priced at the top-end
of the relevant software vendor purchase and
installation costs.
• Moody’s LRMC and RC offer a wide array of
complex computational and analysis tools which
may require a lot of initial training and installation
and post-installation support.
• Moody’s LRMC and RC architecture may need
significant IT and change management planning,
so may have prolonged installation and testing
phases.
• Moody’s Liquidity Risk Solution Family has been
specifically designed to function as a
comprehensive and modular solution, so may not
work as seamlessly integrated with other IT
architecture.
52
Moody’s LRMC and RC: Evaluation
2
54. Appendix: Basel III and Liquidity Guiding Principles
• Basel Committee on Banking Supervision, Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools,
54
(January, 2013) Bank for International Settlements.
• Basel Committee on Banking Supervision, Consultative Document Basel III: The Net Stable Funding Ratio, (February,
2014) Bank for International Settlements.
• Basel Committee on Banking Supervision, Instructions for Basel III Monitoring, (25 March, 2014) Bank for
International Settlements.
• Basel Committee on Banking Supervision, Principles for Sound Liquidity Risk Management and Supervision,
(September, 2008) Bank for International Settlements.
• Committee of European Banking Supervisors (CEBS), Guidelines on Liquidity Cost Benefit Allocation, (27 October,
2010).
• Financial Services Authority, Strengthening liquidity standards, Policy Statement 09/16, (October, 2009).
• Financial Stability Institute, Liquidity transfer pricing: a guide to better practice, (Occasional Paper No 10).
(December 2011). Financial Stability institute, Bank for International Settlements, by JoelGrant (Australian Prudential
Regulation Authority).
• Moody's Analytics, Eleven Best Practice Principles for Implementing High-Value FTP Systems, (September, 2011).
55. 55
References: (1)
• Accenture (2011). Basel III and Its Consequences: Confronting a New Regulatory Environment. Accenture Management Consulting, by Michael Auer,
(Executive Principal, Accenture Risk Management, Munich), Georg von Pfoestl (Manager, Accenture Risk Management, Vienna), and Jacek
Kochanowicz (Manager, Accenture Risk Management, Frankfurt).
• AxiomEPM (2012). Extracting More Value from FundsTransfer Pricing. (April).White Paper.
• BCBS (2010). Results of the comprehensive quantitative impact study. (December). Basel Committee on Banking Supervision, Bank for International
Settlements.
• BCBS (2013). Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools. (January). Basel Committee on Banking Supervision, Bank for
International Settlements.
• BCBS (2014). Basel III: The Net Stable Funding Ratio. (January). Basel Committee on Banking Supervision, Bank for International Settlements.
• Becker, L. (2014). Repo desks up in arms about NSFR. (7 April), Riskmagazine.
• CEBS (2010). Results of the comprehensive quantitative impact study. (16 December). Committee of European Banking Supervisors.
• Devasabai, K. (2014). Hedge funds face higher prime broker charges under Basel III. (18 June). Risk Magazine.
• Farooqui, S. (2011). Development of Simulation based Model to quantify the degree of Bank’s Liquidity Risk. 2011 ERM Symposium (14-16 March),
Swissôtel Chicago, Chicago, IL.
56. 56
References: (2)
• Felder, R. and Mahlknecht, M. (2013). Basel III: Solving the Liquidity Business Challenge. (April). Capco Journal 37: Cass-Capco Institute Paper Series
on Risk, pp.76-94.
• FSI (2011). Liquidity transfer pricing: a guide to better practice (Occasional Paper No 10). (December). Financial Stability institute, Bank for
International Settlements, by JoelGrant (Australian Prudential Regulation Authority).
• IMF (2013). Changes in Bank Funding Patterns and Financial Stability Risks, In Global Financial Stability Report: Transition Challenges to Stability,
pp.105-148. (October), International Monetary Fund.
• IMF (2014). The Net Stable Funding Ratio: Impact and Issues for Consideration. IMF Working Paper, (WP/14/106) by Jeanne Gobat, Mamoru Yanase,
and Joseph Maloney (ThisWorking Paper should not be reported as representing the views of the IMF).
• King,M.R. (2013). The Basel III Net Stable Funding Ratio and bank net interest margins. Journal of Banking & Finance, 37, pp.4144-4156.
• Kratky, A. (2012). Incorporating Liquidity Risk into Funds Transfer Pricing: Progress and Challenges. Commerzbank (Group Treasury – Liquidity
Analytics), presentation for the Professional Risk Managers’ International Association.
• Leon, C. (2012). Estimating the intraday liquidity risk of financial institutions: a Monte Carlo simulation approach. (27 September 2012), Journal of
FinancialMarket Infrastructures.
• Linklaters (2011). Basel III and project finance. (July), Briefing by MatthewWorth and Edward Chan, as published in Project Finance International, 29
June 2011, Issue 460.
57. 57
References: (3)
• Matz, L. (2011). Liquidity RiskMeasurement andManagement. Xlibris Corporation.
• McKinsey (2010). Basel III and European banking: Its impact, how banks might respond, and the challenges of implementation. (November),
McKinsey Working Papers on Risk, Number 26, McKinsey & Company, by Philipp Härle, Erik Lüders, Theo Pepanides, Sonja Pfetsch, Thomas
Poppensieker, andUwe Stegemann.
• Moody’s Analytics (2011). Implementing High Value Funds Transfer Pricing Systems. (September)ModelingMethodology by Robert J.Wyle, CFA and
YaakovTsaig, Ph.D.
• Moody’s Analytics (2013). Liquidity Risk Management is a Game Changer. (December) Research /Whitepaper by Cayetano Gea-Carrasco (Stress
Testing, Balance Sheet Management, and Liquidity Practice Leader) and David Little (Managing Director, Head of the US Enterprise Risk Solutions and
SalesTeam).
• Oracle Financial Services (2011).Oracle Financial Services Liquidity Risk Management. Oracle Data Sheet.
• Pokutta, S. and Schmaltz, C. (2012). Optimal Bank Planning Under Basel III Regulations. Capco Journal of Financial Transformation, Journal 34,
pp.165-174.
• PwC (2014). Stretched to the limit: Dealing with the implications of the NSFR (Basel III breakfast briefing series). PricewaterhouseCoopers LLP.
• SSG (2009). Risk Management Lessons fromthe Global Banking Crisis of 2008. (21October). Senior SupervisorsGroup.
• Taylor, S. (2011). Unlocking Liquidity Premiums. (April) Novantas Review, pp.1-4.
• Watt,M. (2012). Basel III blamed for aircraft financing drought. (9 May), Riskmagazine.
58. Presentation Information
DECLARATION OFCONFLICTING INTERESTS
The author declares that to the best of his knowledge he has no potential conflicts of interest with respect to the research or
authorship of this presentation.
ABOUTTHE PRESENTER
Rodrigo Zepeda is an independent consultant who specialises in derivatives and financial services law, regulation, and
compliance. He holds a LLM Masters degree in International and Comparative Business Law, has been an Associate of the
Chartered Institute for Securities and Investment since 2004, and has passed the New York Bar Examination. He has also
published widely in leading industry journals such as the Capco Institute’s Journal of Financial Transformation, the Journal of
International Banking Law and Regulation, as well as e-books on derivatives law. Noted publications include “Optimizing Risk
Allocation for CCPs under the European Market Infrastructure Regulation”; “The ISDA Master Agreement 2012: A Missed
Opportunity”; “The ISDA Master Agreement: The Derivatives Risk Management Tool of the 21st Century?”; and “To EU, or not to
EU: that is the AIFMD question”.
58
CONTACT DETAILS
Email: rodrigo@zepeda.co.uk
LinkedIn: http://www.linkedin.com/in/rodrigozepeda
Mobile: UK + (0)7592457373
59. 4th Annual
Practical Funds Transfer Pricing and Balance Sheet Management Forum
17th September 2014, London, UK
NSFR LIQUIDITY FRAMEWORK:
Practical Implementation
Requirements
IMPLEMENTATION REQUIREMENTS TO ADAPT
TO NEW NSFR LIQUIDITY PARAMETERS
WORKSHOP
Rodrigo Zepeda
Independent Consultant
Editor's Notes
Global Financial Crisis Funding
On the whole banks relied on, and took for granted, the constant availability of cheaper wholesale funding with shorter maturities in the financial markets.
Basel III Funding
Customer deposits are a naturally avenue which many banks might seek to pursue, but these are likely to attract significant competition in the future.
The issue of greater proportions of equity by banks may make banks safer, but the traditional banking model has predominantly heavily relied on high debt:equity ratios (i.e. loading up on debt).
Domestic capital markets and ICM are a future possibility, but this may entail significant work such as prospectuses, road shows, etc.
Covered bonds may be one solution, but this may require specific legislation or national facilitative regulatory frameworks to be put in place.
(Linklaters 2011):
Basel III increases capital that needs to be set aside for new risk weightings of riskier assets and liabilities such as OBS risks and derivatives exposures.
(Accenture 2011):
Banks’ capital has been reduced through stricter definitions, RWAs (i.e. securitizations, trading book positions, counterparty credit risk exposures) increased.
The combined effects of Basel III need to be considered together, and for instance, new leverage ratios, higher capital requirements, and new liquidity standards should be viewed holistically, especially with regards to the potential impact they may have on each other, and the potential for synergies.
Repos: asymmetrical treatment for repos when conducted with non-bank financial entities such as money market funds and asset managers, which are big users of repos (Becker, 2014).
Eric Litvack (Head of Regulatory Strategy at Societe Generale Corporate & Investment Banking): “The NSFR proposal is a concern as it introduces asymmetry between repo and reverse repo with non-bank financials. This effectively means a short-term reverse repo would generate a requirement for long-term stable funding. So, in effect, though you may be lending overnight, you need to back it up with 100% of six-month financing or 50% of one-year financing”.
As banks increasingly compete more aggressively for retail deposits (with higher intrinsic value because of NCR/NSFR), retail deposits may be become less stable (increased use of 7-Day Switching Rule) and increased competition for better rates means retails deposits become more expensive.
Banks may need to re-structure balance sheets to increase HQLA holdings.
Banks may need to increase the liquidity efficiency of existing business models and product lines.
Larger banks may need to centralise liquidity risk management and monitoring across different jurisdictional markets, at the same time applying “local” liquidity regulation weightings and/or haircuts.
Monitoring long-term liquidity ratios and LTSF levels may necessitate enhancements or new IT investment expenditures in order to ensure systems, treasury data, analytics, and risk and liquidity monitoring, management, and reporting systems are sufficient and effective.
Banks need to ensure that they understand how the different ratios (LCR, NSFR, and Leverage) and capital requirements interact with each other, and how they impact upon specific bank tactics and strategies.
In order to ensure that banks have effective supervisory and monitoring systems in place, they will need to increasingly integrate data across systems and departments.
Banks will now be looking at developing or improving proprietary liquidity data collection and analytic programs to support liquidity risk calculations and Basel III reporting requirements.
Gap analysis of different operational functions needed.
Legal: For example, Loan Market Association documentation or bank facility agreements do not include an express Basel III carve-in for the increased costs clause, as market sentiment currently considers that it is drafted sufficiently widely to cover the wide array of circumstances that would increase the lender’s costs resulting from legislative or regulatory changes. However, in the US there seems to be a move towards an express Basel III carve-in for Dodd-Frank, which may lead to this clause being redrafted in a similar fashion in the UK.
Existing bank funding sources can be distinguished by the type of investor, the type of instrument, and the priority involved.
Wholesale funds often used for investment in financial assets, including for bank’s proprietary trading.
Rehypothecation (re-use of collateral) increased interconnectedness of financial system.
Regulatory capital as defined by Basel III absorbs incurred losses prior to other creditors.
Highest quality capital is that which has the highest capacity for absorbing loss.
Preferred shares are senior to common equity, typically carrying no voting rights, but receiving dividends prior to common equity distributions.
CoCos are issued bonds that can be converted to common equity when regulatory capital reaches pre-specified threshold.
(Accenture, 2011): The potential impact of Basel III will vary from institution to institution, and will in all likelihood depend on the lines of business in which the bank operates, as well as the geographic region or regions in which it does business.
Contextualise the overall liquidity requirements needed or envisaged by the bank within the new general Basel III operating framework.
Accenture (2011, p.9): “Crucial is the integration of new regulatory requirements into existing capital and risk management as some measures to improve new ratios (e.g. liquidity ratios) might have a negative effect on existing figures.”
Oracle Trends and Developments
(1) Frequency of processing moving from traditional monthly FTP to more frequent, Daily processing. We support this need very well based on our ability to manage very large data volumes in the underlying Oracle database. This allows for loading / handling of daily data extracts and reconciliation of the data and our processing engines are capable of scaling to accommodate data volumes seen in the largest banks in the world. This also gives organizations flexibility to manage their FTP rate assignments including an ability to attach multiple FTP rates (base rates + add-on’s such as liquidity charge) to each individual account record providing full transparency into the FTP all-in charge.
(2) Need to consider customer details and the entire customer relationship when determining FTP add-on charges like Liquidity Premiums (i.e. same data and assumptions used to compute liquidity ratios needs to be available when assigning FTP Liquidity Premiums). This has become an important extension to the traditional FTP process, because the data requirement has been extended significantly forcing banks to attach more information about the customer to individual contracts. To support this, we have extended our common data model and processing capabilities to provide consistency and sharing of “customer” related information as it applies to both Liquidity Ratio calculations and mapping / calculation of FTP Liquidity Premiums.
ABACUS/LiMA offers the option of simulating single transactions. With these features, the user is able to identify the effects of cash flow changes, tender, lending, and repurchase agreements, not only of the LCR, but also effects to the income statement. Thus, he can compare options of future transactions.
Caveats to disadvantages:
Normally MORS installations are very short-time ones and compared to that installing many or all MORS modules would arguably take more time, BUT compared to many data base or data warehouse projects any combination of MORS modules could be seen as short.
Normally MORs bank-wide installations take more time than treasury installations, BUT MORS still have very good examples of bank-wide projects and integrations to custom-built solutions.
Parameter Deal Mapping: groups financial instruments at the deal level into cohorts of deals that can be used to parameterize different types of behaviour, assumptions, and calculations. Parameter Deal Mapping offers users a high degree of flexibility in grouping bank deals together for specific analysis computations and the granularity to assign behavioural assumptions to those deals.