Learn, explore and unleash your inner chef.

For internal management but also for regulatory expectations being able to split the NSFR or other related metrics down to legal entity, currency and even further into business line information is of high importance.

For any granular reporting requirement, the granularity of the underlying data is essential. This obviously must include external transactional data but also intercompany data. You can take either a bottom-up or top-down view to collect data. The approach of choice very much depends on the systems and data availability but also on the organizational set-up of each particular institution.

If you take a centralized view, ideally the effort to collect the data and the consistency of the data should improve. What needs to be considered then, however, is also the difference in accounting standards if this data should also be the basis for external regulatory reporting on a legal entity basis.

Furthermore, the ‘worst-of’ logic needs to apply for LCR and NSFR which means that the most conservative regulatory reporting requirements in one country must be taken into consideration when aggregating up local data to a consolidated report.

What are the regulatory expectations for reporting the LCR and NSFR?

In theory, liquidity reporting is simple. You need daily transactional data with sufficient attributes to meet the regulatory requirements. Data should come from strategic sources supporting external regulatory reporting requirements but also internal reports based on own methodologies.

You need to be able to aggregate the data into the required reporting templates. However, your reporting platform also needs to be flexible enough to accommodate any ad hoc request from regulators or from internal stakeholders with different aggregation logic. To be able to do that, the system needs to allow drill-downs to transactional level, by currency, legal entity and aggregation based on granular business levels. Furthermore, you need to have the capability to do scenario and ‘what-if’ analysis as well as delta explain.

The IT system cannot be designed in isolation but needs to be aligned to the report production process. So, before engaging into an IT change programme, a reporting function should do a thorough review of its processes to define the detailed IT capabilities and functionalities required.

Why is it important to move into behavioural model based reporting and how can this project future liquidity positions?

To a certain extent, Liquidity Management is more art than hard science as contractual maturities only explain a part of the liquidity risk that a bank needs to prepare for. Subject to the particular environment, clients will behave differently so that behavioural assumptions are integral components of every liquidity management framework. This is evident in the treatment of non-contractual deposits as they are typical for a large part of retail deposits. Typically, these deposits follow a certain pattern and demonstrate a high stability. However, in particular under idiosyncratic stress, a certain amount of outflow of deposits will need to be assumed to prepare for sufficient liquidity buffers. The same applies for contingent funding requirements like committed facilities but even to certain elements of derivative collateral requirements.

For LCR and NSFR, the regulatory requirements broadly reflect such considerations and already embed stability and contingent outflow assumptions into the provided roll-off assumptions. For operational deposits in the cash management area, a certain amount of regulatory flexibility requires an interpretation of the rules and a sound documentation and back-testing for the ongoing reporting.

What would you like to achieve by attending the 16th Annual Liquidity Management conference?