Global Risk Community’s Post

Liquidity Risk Update 💧📊 Back in August, we spotlighted how liquidity regulation and supervision for banks are increasing – but with uncertainty surrounding the path forward. Just a few weeks later, the Basel Committee on Banking Supervision (BCBS) released a progress report on the topic, shedding further light on the potential direction of travel. While still light on specifics, the report underscores the importance for banks to understand their own specific liquidity risk and demonstrate true ‘crisis’ readiness. With thanks to Aidan Horvath and François Franzl, this Oliver Wyman Treasures focuses on our summary of the report's key takeaways and what it means for banks and liquidity managers. 📈🔍 Read on and let us know if you have any comment or question. Oliver Wyman Marcel Kikiernicki Gokce Ozcan Jai Sooklal Eric Czervionke Klaus Hoelzer Ronan O'Kelly Elie Farah

Shifting tides: The future of bank liquidity regulation Recent public statements by federal banking regulators have foreshadowed how they might adjust key liquidity risk management areas, including: - Discount window preparedness - Real intraday liquidity - Treatment of deposits - Treatment of held-to-maturity assets - Contingency funding plans In our analysis, we present considerations banks may have when enhancing their existing capabilities in alignment with upcoming regulatory changes. Read more here: https://lnkd.in/eFb2Gx6K Ryan McDevitt Joseph Rice, MBA, NACD Nicholas Alonso, MBA, FRM

💡 Identify hidden risks and early warning signals of liquidity stress to strengthen resilience and ensure your firm’s viability during a liquidity crisis. 🎥 Watch on-demand: "How to navigate the unpredictable waters of liquidity risk in modern banking" with our featured speakers Evgueni Ivantsov, Pierre Gaudin, Michael Eichhorn. #liquiditymanagement #liquidityrisk #intradayliquidity #realtimeanalytics #atoti #liquiditystress https://lnkd.in/exHq-wmx

In a speech at the 23rd FED-IMF-World Bank Annual International Conference on Policy Challenges for the Financial Sector, IMF Financial Counsellor Tobias Adrian discussed the overall global financial environment that currently sets the scene for the risk landscape in the financial sector. He also underscored the importance of full, timely, and consistent implementation of the Basel standards. This year’s conference theme centered around the importance of strengthening fundamentals to better adapt to the evolving risk landscape. The conference’s objective is to discuss how central banks and financial sector supervisors and regulators are responding to financial stability risks from an ongoing challenging macroeconomic environment while continuing to make progress on longer-term priorities, including challenges arising from technological and climate-related financial risks in the financial sector. Key financial stability risks, supervisory and regulatory issues, as well as crisis management preparedness were explored. Read the speech 👉 https://lnkd.in/eJ9BN42a

Liquidity Risk

🌊 Liquidity risk has been a major concern since the collapse of Silicon Valley Bank last year, writes Evgueni Ivantsov, raising critical questions about regulatory requirements and the measures needed to prevent future crises. Evgueni, chair of the European Risk Management Council, outlines the insights he has learned from studying notable ‘victims’ of liquidity squeezes. 📉 The special nature of liquidity risk: Unlike other financial risks, liquidity risk is deeply tied to market confidence. Case studies show that a crisis of confidence often triggers liquidity crises, but these are symptoms of deeper issues like flawed business models and reckless investments. 🏦 Reputational crises and banking failures: Northern Rock's 2007 collapse highlighted how aggressive growth strategies and heavy borrowing can create a "time bomb." Similarly, SVB's shift to long-term securities left it vulnerable to interest rate risk, leading to a loss of depositor confidence. 💡 Preventing future liquidity crises: While maintaining liquidity reserves is crucial, they alone can't prevent a crisis. Effective reputational risk management is essential to maintain stakeholder confidence in a bank's business model and financial stability. 💬 What steps should regulators and banks take to strengthen liquidity risk management and how can we ensure market confidence is sustained? Read more below👇 https://lnkd.in/e_THEK7c #LiquidityRisk #Banking #FinancialRegulation

Weekly Post Series Research 2024 #12 Weekly Post Series topics include Research, Strategies, Products Managing the Stability of Funding: Liquidity Gap Report   I will discuss FDIC FIL and Liquidity Risk this week. Today, my research shows the troubling negligence of the Liquidity Gap Report in managing liquidity. Tomorrow, I will propose a strategy for using the Contingency Funding Plan report to manage liquidity. I will evaluate bonds in the post on Products for liquidity management.   Challenge   A recent FDIC Financial Institution Letter1 (FIL) discusses the regulatory focus for 2024 in the Summary:   “The events of 2023 have underscored the importance of robust liquidity risk management and contingency funding planning. The agencies are issuing this updated guidance to remind depository institutions to maintain actionable contingency funding plans considering various stress scenarios.   “Statement of Applicability: The contents of, and material referenced in, this FIL apply to all FDIC-supervised financial institutions.”

Bank failures (and near-failures) in 2023 were often characterized by substantial and rapid deposit outflows fueled by negative social media. The affected banks had underlying issues, including financial imbalances, structural deficiencies, and notable shortcomings in risk management and governance. Yet negative information spread on social media (regardless of its veracity) can quickly exacerbate vulnerabilities to liquidity stress. Read more: https://ow.ly/ZBQV50QJc1u

🚨 New ECB Paper Alert: Sound Practices for Managing Intraday Liquidity Risk - November 2024 🚨 It provides a comprehensive framework based on insights from recent financial stress events, including the 2023 Credit Suisse collapse, and technological advancements like 24/7 payments. 📌 My View: This paper is a timely and thorough guide (all packed in just 13 pages!!), a must-read for those in treasury risk. It reinforces best practices and offers an excellent foundation for building resilient, forward-looking intraday liquidity risk management strategies, policies, and frameworks. 📌 Here's a quick summary of the principles covered: 1. Risk Management Framework: Defines intraday liquidity risk with a clear taxonomy, roles, and a risk appetite aligned with firm-wide policies. 2. Governance: Emphasises a strong, three-line defence model with structured escalation protocols and stress-testing oversight. 3. Forecasting: Provides tools for projecting intraday cash flows and prioritising critical time-sensitive payments. 4. Monitoring: Advocates real-time monitoring tools and alerts to manage unexpected liquidity needs across all currencies. 5. Managing Outflows: Establishes a payment priority framework (payment ladder) to ensure timely handling of obligations and an adaptable response in stressed conditions. 6. Sources of Liquidity: Identifies reliable liquidity sources with tested mobilisation times, especially during stress scenarios. 7. Stress Testing: Requires detailed stress scenarios covering both idiosyncratic and market-wide risks, with daily recalibration for critical currency buffers. Happy reading. #intradayliquitity #liquidityrisk #treasuryrisk #ecb #bcbs