Additional Liquidity Monitoring Metrics

Transcription

1 Additional Liquidity Monitoring Metrics Implementation factors and data management Jacek Rzeźnik Market and Liquidity Risk Reporting and Analytics The opinion and views expressed herein are those of the author and do not necessarily represent those of mbank S.A.

2 2007 Liquidity crisis - regulatory lessons 1.Too much maturity transformation 2.More stable funding needed 3.Interconnectedness of the financial sector 4.Concentrations 5.Wholesale markets are fragile and can disappear quickly 6.Reduce reliance on central bank s facilities (liquid buffers) 7.There is good banking business (loans, deposits) and bad banking business (prop trading, derivatives) 8.Tighter regulations provide greater security for financial institutions and their clients 9.Liquidity crisis spread very fast and require quick response ALMM implementation and management 2

3 Warning indicators of liquidity risk- examples 1.Increasing retail deposit outflows 2.Rapid asset growth 3.Increase in currency mismatches 4.Decrease in the average maturity of liabilities 5.Negative publicity 6.Credit downgrades ALMM implementation and management 3

4 From principle-oriented supervision to more quantitative oriented supervision 1.Following the 2007 liquidity crisis, Basel Committee has issued new guidelines: BCBS 144 Principles for Sound Liquidity Risk Management and Supervision (09/2008) BCBS 188 Basel III: International framework for liquidity risk measurement, standards and monitoring (12/2010) (here is where ALMM first appeared). BCBS 238 (01/2013) & BCBS 295 (10/2014) LCR; BCBS 271 NSFR (04/2014) 2.The CRR mandated EBA to specify additional liquidity monitoring metrics 3.EBA S final implementing technical standards (07/2014) dictate monitoring tools and follow approach developed by Basel Committee (BCBS 188) 4.Reporting started in April 2016 (monthly reports) and Q (quarterly reports) 5.Reported at the level of consolidation at which reporting of LCR is required ALMM implementation and management 4

5 Additional Liquidity Monitoring Metrics Short term liquidity (LCR) 30days view ALMM MATURITY TRANS- FORMATION MARKET ACCESS CONCENTRATIONS Stable Funding (NSFR) 1year view + Public disclosure 5 ALMM implementation and management

6 ALMM templates C66 - Contractual maturity mismatch template Maturity mismatch of balance sheet based on contractual Suspended flows. Provides insight into extent to MATURITY which bank relies on maturity transformation TRANS- under its current contracts. FORMATION Time buckets from O/N up to >10 years C69 & C70 - Volumes, spreads and rollovers of funding in the past month The average transaction volume and prices paid by institutions for funding with different maturities from O/N to 10years. MARKET Weighted external interest rates of new ACCESS transactions. Volume of funds maturing and new funding obtained i.e. rollover of funding, on a daily basis over a monthly time horizon. C67 & C68 - Concentration of funding CONCENTRATIONS by C71 - Concentration of counterparty and product counterbalancing capacity Top 10 largest counterparties from which funding Concentration by the 10 largest exceeds threshold of 1% of total liabilities. holdings of assets or liquidity lines (name, type, location, product type, currency, granted to the institution for amount, weighted average and residua maturity) counterbalancing measures. Concentration of funding by product type from Consistent with LCR e.g. MtM and retail and wholesale where each product unencumbered assets, but scope category that exceeds threshold 1% of total broader not only LCR buffer but all liabilities. tradable assets 6 ALMM implementation and management

7 Objective of ALMM 1. Comprehensive view of institutions' liquidity risk profile complements LCR and NSFR 2. Facilitates review of ILAAP 3. Early Warning Tool allows to identify possible sources of funding pressures early and to take supervisory actions 4. Helps to understand interdependences 5. Cooperate more effectively on issues relating to cross border institutions 6. Harmonisation of reporting & comparability of data between institutions 7. Consistent and reliable data But potential challenge to consume this vast data ALMM implementation and management 7

8 ALMM- implementation challenges 1.New data requirements - very granular and detailed (e.g. daily roll-overs and prices for various lengths of funding, daily reference rates for exotic currencies) 2.Retrieving and cross-checking (validate) 3.Specifications are not precise 4.Interpretations and tailoring by local regulators 5.Scope individual and consolidated (different standards) 6.Reporting Times (until October 2016 remittance date for monthly reports is the 30th calendar day, but then reverts to 15 calendar days) 7.No phasing-in 8.Timing: parallel to implementation of LCR and NSFR ALMM implementation and management 8

9 Liquidity monitoring and reporting data challenges 1.Granularity & new data requirements 2.Volume 3.Aggregation 4.Validation/normalisation 5.Velocity/high performance 6.Costs New regulatory requirements call for a robust and fast data management system, which can both source data from multiple databases and decompose it into the necessary granularity. ALMM implementation and management 9

10 Benefits for us? 1. Implementing it into MIS : May supplement liquidity risk framework - monitoring of additional metrics at consolidated and standalone basis Avoid duplication of processes e.g. source of data for Early Warning Indicators Monitor what picture of yourself you send out to the regulator (Visualization of XML reports) 2. Uniform reporting reduces compliance costs of crossborder institutions (e.g. enhancing existing COREP/FINREP infrastructure) ALMM implementation and management 10

11 From tactical to strategic response to regulation The pace of regulatory change is not slowing down BCBS 239 Principles for effective risk data aggregation and risk reporting Standardised Approach to Counterparty Credit Risk (SA-CCR) Standardised Approach to Central Counterparty exposures (SA-CCP) Fundamental Review of the Trading Book (FRTB) Dodd Frank and EMIR. IFRS 9 IRRBB (EBA & BCBS) Recovery & Resolution Plans MREL TLAC NSFR Intraday liquidity reporting More stress testing ALMM implementation and management 11

12 From tactical to strategic response to regulation Interlinks finance, risk management and compliance with business needs Adding people and localised processes (spreadsheets), just to meet its demands is short viewed Regulation should be viewed less as a burden and more as a strategic opportunity to: enhance risk management process streamline operating systems (agile solution, use latest technology) improve data capture and quality (upstream, standardisation) build culture of data ownership improve efficiency of reporting (reduce compliance cost) reuse regulatory data for management decision (generate business benefit from essential activity) better decisions (valuable business insight) Look beyond current regulatory compliance try to anticipate further regulatory change and gain competitive advantage from it. ALMM implementation and management 12

13 Thank You! Jacek Rzeźnik Deputy Director Market and Liquidity Risk Reporting and Analytics mobile phone ALMM implementation and management 13