With banks large and small moving data and applications to some of the many well-known cloud providers, a new era of risk technology is forming. With more and more data being moved to the cloud, effective liquidity risk solutions are essential to prevent liquidity risk data held in the cloud from transforming into storm clouds. Legacy liquidity risk systems may not have the capacity that financial institutions require to process liquidity risk data efficiently, and without modern technology, a torrential thunderstorm could flood the world’s banks. The Suade liquidity risk solution will help you manage your liquidity risk data and prevent the potential, torrential rain.
Stopping the Thunderstorm
The purpose of liquidity management is to ensure liquid assets are available when needed. Financial institutions and regulators around the world are demanding better visibility of liquidity more often and with greater granularity. For financial markets to operate efficiently, banks need to be able to pay depositors their money and asset managers need to be able to meet requests for the release of funds, while insurers need to be able to pay claims. To effectively evaluate liquidity needs, liquidity risk solutions must be able to offer clear insights into the liquidity positions of banks, asset managers, and insurers. For cloud-based solutions, data management is key to avoiding a flood.
After the global financial crisis, regulators around the world implemented new liquidity requirements for financial institutions to help the financial system withstand unforeseen shocks to the global economy. The global pandemic and crisis caused by COVID-19 have demonstrated that the policies put in place by regulators have provided financial institutions with strong levels of resilience to support markets and the general public while remaining well capitalised, liquid, and profitable. One example is the liquidity coverage ratio (LCR).
The LCR requires banks to hold sufficient high-quality liquid assets, such as cash, that match or exceed projected net cash outflows over a 30-day period. The objective of the LCR is to promote the short-term resilience of the liquidity risk profile of banks through having access to liquid assets. The LCR can be flexed to help the economy. In 2020, the South African Reserve Bank (SARB) reduced the LCR from 100% to 80% to enable banks to continue lending amid expected liquidity shortages and a rise in defaults as a result of the pandemic. Without the appropriate tools in place to monitor liquidity risks, banks would not be able to determine the impact of their lending activities on their LCRs and, thus, not succeed in managing liquidity risks effectively. The same reasoning applies to other standards designed for monitoring liquidity risks, including the net stable funding ratio. With capable solutions, institutions would be able to weather the storm of liquidity data and information, but what liquidity data is needed?
It’s all about cashflows. Simple!
No, it’s not quite that simple. Yes, ultimately every financial transaction creates a cashflow or a series of cashflows; however, the devil is in the detail. Some cashflows are easily identifiable, while others are subject to detailed rules of interpretation. For some cashflows, for instance, we need to factor in the behavioural characteristics of counterparties in complex transaction chains or of retail depositors. Financial institutions spend a lot of time, effort, and brain power to model future cashflows, especially around longer dated transactions which may have underlying behavioural characteristics such as mortgages and complex products such as derivatives. With mortgages, the speed that someone pays off a mortgage varies, and this variation needs to be modelled. With derivatives, especially more complex derivatives, the payoff also needs to be modelled. Without an effective liquidity risk solution, the droplets of data produced during these modelling exercises will quickly turn into an unmanageable thunderstorm.
How can Suade help?
The software engineers and regulatory experts at Suade have developed our liquidity engine to cater to the real world. Suade delivers strategic benefits to support financial institutions capital, liquidity, financial, and statistical reporting, globally. Suade is designed to support business “not” as usual. With many banks moving more and more technology and data to the cloud, Suade’s cloud agnostic solution is ready to provide cutting edge liquidity risk technology regardless of the number of liquidity data droplets in your cloud. With Suade’s liquidity risk solution, integration with the front office is seamless via APIs, ensuring that no department is left unconnected and standing alone in the rain. In the spirit of BCBS 239, your liquidity risk data is now reusable across all departments. FIRE is key to this process.
FIRE is a global open-source data schema which is an industry-led initiative to improve financial data standards and data collection, benefitting both regulators and financial institutions. Suade’s solution has been designed to seamlessly integrate with the data schema, providing financial institutions with access to and management of their data like no other solution in the market.
Suade is suitable for all weathers. If you would like us to bring some sunshine to your liquidity risk management, book a demo here.