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Constandinos Vinall
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19th Annual
Liquidity Management
Now that banks have completed the implementation of LCR, what is the most important objective for liquidity managers in banks?
Compliance remains an important objective to be pursued. The regulatory environment is still evolving, just think that in Europe next April a modified version of the Liquidity Coverage Ratio will come into force (although subject to minor changes) and in June 2021 the new Net Stable Funding Ratio indicator will be introduced. In addition, at the end of December 2020, banks will have to comply with the new EBA guidelines on Funding Plans, so they will be required to provide a prospective version of the balance sheet, LCR / NSFR indicators and the pricing mix level of P&L as well. In order to comply with this last requirement, banks must adopt an integrated approach in their planning processes, implementing procedures, processes and application tools able to meet the different needs emerging from the CRO and CFO departments.
How would advanced analytics for behavioural modelling and more granular set up of liquidity buffers impact liquidity management?
Our perspective is that AI and advanced analytics are paving the way to a new generation of behavioural models for ALM and Liquidity Risk, giving the possibility to process and analyze a much wider set of data, including complex and unstructured data flows. Loans prepayment, core deposits, excess balance for operational deposits: these are all potential use-cases where traditional statistical analysis can be enhanced using machine learning capabilities, to elaborate transaction data, such as the number of call centre contacts, the reliance on digital channels and so on. As a result, these models can really improve their predictive capabilities, to better support day by day risk management.
What is the biggest challenge banks face with achieving liquidity optimisation?
The Liquidity Stress Test exercise, carried out in February 2019 by the ECB, highlighted a number of critical issues in liquidity risk management, including a limited capability to quantify the collateral able to support secured funding operations. In particular, it showed that - on average - European institutions are not able to identify the eligibility status of about 19% of their assets. This, of course, makes the process of collateral management and optimization less effective, especially in case of stress scenarios. Banks, therefore, need to better structure their asset monitoring processes, enrich their information sets and potentially consider alternative funding channels.
What are the best solutions for these challenges?
In the last ten years, the financial sector has been hit by a real regulatory tsunami, which has forced many institutions to invest a great deal of time and money to ensure regulatory compliance first and foremost. Now the environment has changed dramatically and banks have begun to put more emphasis on the re-engineering of internal managerial frameworks.
A robust IT infrastructure, in particular, represents the real game-changer in this process. Banks need a platform that supports liquidity analysis both from a business and regulatory perspective and, at the same time, integrates cash flows with interest rate and credit risk factors. A single platform, therefore, sufficiently flexible to cover the multiple needs of Risk Management, Planning and Treasury functions. It is not an easy process but this is a mandatory step for a vendor, like Prometeia, who has the ambition to develop a truly state-of-the-art solution for Balance Sheet Management processes.
What do you expect to get out of the event?
Networking, sharing ideas and checking the pulse of the market, receiving valuable feedback on our solutions.
Massimo Pedroni
Senior Partner & Head of International Business, Enterprise Risk Management
Prometeia
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Ahead of the 19th Annual Liquidity Management conference, we spoke with Massimo Pedroni from Prometeia
About the Conference
10 years on from the financial crisis and the pressure regulators and banks have to manage liquidity is still on. Since the release of liquidity regulations, LCR and NSFR, we have seen increased focus on an intraday liquidity and also other risk and capital regulations which has heightened pressure and importance on properly managing liquidity. At this point, banks have set up adequate liquidity buffers, but with liquidity becoming increasingly accessible to customers through 24/7 banking and instant payments, measuring real-time liquidity levels and maintaining liquidity metrics has never been harder. This year’s marcus evans conference will look to drive daily optimisation of liquidity metrics particularly intraday liquidity whilst considering interplay with other risk and capital measures.
Massimo Pedroni, Head of International Business. A partner at Prometeia since 2015, Senior partner since 2018. He is Head of the International business line of the Enterprise Risk Management area and he coordinates the activities of the overseas branches of the Group based in London, Istanbul, Moscow, Cairo and Lagos. A graduate with honours in Banking Economics from the University of Modena in 2000, he completed a Master’s in Finance at University College London (UCL). Before returning to Prometeia, he worked for KPMG and Lloyds TSB in London as head of the Model Governance & Validation department. His many years of experience as a Risk Management consultant have seen him work in over fifteen countries, managing major projects in Austria, Germany, Russia, Turkey, Central-Eastern Europe and the Middle East.
More Information
To View the Conference Agenda, click HERE!
To view the Conference Agenda, click HERE!
massimo.pedroni@prometeia.com risk.community@prometeia.com
