Neville Roberts’ Post

Network for Greening the Financial System (NGFS) released the second edition of the report, "Guide on climate-related disclosure for central banks". This second edition updates and revises the previous guide, including a new chapter on metrics and targets.  Summary: Organised around four thematic areas (Governance, Strategy, Risk management, and Metrics and targets), the guide introduces a distinction between “baseline” and “building block” disclosure recommendations. Key takeaway 1. Governance: Disclose the institutional climate-related goals, targets, and processes for informing the board and management on climate-related issues as well as climate-related governance structures for specific areas and functions 2. Strategy: Disclose climate-related impacts related to the central bank as well as the strategy – in terms of adaptation, capacity building and communication – for handling these impacts 3. Risk management: Disclose the processes for managing climate-related risks at the central bank, focusing on identification, assessment, and integration into risk management. 4. Metrics and targets: Disclose metrics and targets relating to the central bank’s management of climate-related risks and exposure to climate-related risks and opportunities. Full report attached.

𝐄𝐂𝐁 𝐩𝐮𝐛𝐥𝐢𝐬𝐡𝐞𝐬 "𝐒𝐨𝐮𝐧𝐝 𝐩𝐫𝐚𝐜𝐭𝐢𝐜𝐞𝐬 𝐟𝐨𝐫 𝐦𝐚𝐧𝐚𝐠𝐢𝐧𝐠 𝐢𝐧𝐭𝐫𝐚𝐝𝐚𝐲 𝐥𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐫𝐢𝐬𝐤" In response to recent financial stress events like the 2023 market turmoil and the failure of Credit Suisse, the European Central Bank (ECB) has conducted a thematic review on intraday liquidity. The paper gives a comprehensive set of sound practices for managing intraday liquidity risk, designed to ensure financial institutions are better prepared for the rapidly changing financial landscape. 𝐊𝐞𝐲 𝐇𝐢𝐠𝐡𝐥𝐢𝐠𝐡𝐭𝐬: - 𝐃𝐞𝐟𝐢𝐧𝐢𝐭𝐢𝐨𝐧 & 𝐅𝐫𝐚𝐦𝐞𝐰𝐨𝐫𝐤: Establishing a clear definition and comprehensive framework for intraday liquidity risk, aligning with the institution’s policy and risk appetite. - 𝐆𝐨𝐯𝐞𝐫𝐧𝐚𝐧𝐜𝐞: Implementing prudent internal governance and managerial reporting involving all lines of defence. - 𝐅𝐨𝐫𝐞𝐜𝐚𝐬𝐭𝐢𝐧𝐠: Enhancing capabilities to project intraday liquidity needs based on an understanding of forthcoming payments and their priorities. - 𝐌𝐨𝐧𝐢𝐭𝐨𝐫𝐢𝐧𝐠: Real-time monitoring of payment flows and prompt identification of unexpected intraday needs. - 𝐌𝐚𝐧𝐚𝐠𝐢𝐧𝐠 𝐎𝐮𝐭𝐟𝐥𝐨𝐰𝐬: Clear prioritization of different types of payments to ensure timely execution. - 𝐋𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐒𝐨𝐮𝐫𝐜𝐞𝐬: Identifying and prioritizing suitable sources of liquidity for each currency in both normal and stressed conditions. - 𝐒𝐭𝐫𝐞𝐬𝐬 𝐓𝐞𝐬𝐭𝐢𝐧𝐠: Running comprehensive stress tests and maintaining adequate buffers to cover intraday liquidity needs. These practices, largely based on common practices observed among institutions, provide a robust reference for designing intraday liquidity risk management frameworks and serve as a starting point for supervisors to engage with institutions. With innovations like 24/7 instant payments and shorter settlement cycles, managing intraday liquidity risk has become increasingly critical. This initiative by the ECB aims to enhance financial stability and ensure institutions are well-equipped to handle both day-to-day operations and unexpected stress events. Read the Full Report: https://lnkd.in/eR45iUVp #ECB #LiquidityRisk #FinancialStability #Banking #Finance #RiskManagement #Liquidity #FinancialServices #ECBGuide #IntradayLiquidity

Innovation Amid Instability: UK Banks' Responses to the Risk Landscape in 2024: ... Bank (SVB) and Signature Bank, in ... Central BanksChallenger BanksDigital BanksFinanceGary LynamGeopolitical UncertaintyLiquidity ChallengesMetro Bank ...

Traditionally, when providing guidance on risks related to culture and governance, regulators have emphasized positive attributes that banks should adopt. But in a recent paper, the European Central Bank highlighted the red flags that firms should be wary of, demonstrating the value of a so-called negative checklist. https://lnkd.in/eKvPX85r #creditrisk #riskmanagement #riskculture #financialrisk #ECB

In its annual Regulatory and Supervisory Outlook Report and at the Payment and Electronic Money Institutions Engagement event held in February 2024, the Central Bank of Ireland set out its key supervisory priorities. In this update, we look at the key focus areas and supervisory priorities for the year ahead, and summarise the Central Bank’s expectations of regulated payment and e-money firms in relation to those areas. #CentralBank #Ireland

Experts believed the economic meltdown of 2007-08, which propelled the biggest financial decline since the Great Depression was avoidable, and only occurred because no one concerned understood the risks they were taking. These disasters underline a concern that all banks, regardless of size, should make a top priority: Cultivating the appropriate risk culture within the bank. #riskculturelab #riskculture https://lnkd.in/diiZyT7B

For community banks -- particularly those with CRE concentrations -- not all stress tests are created equal. Patti Casaleggio has written a great piece about what banks should consider in their stress testing partner. This is especially important for banks trying to weight the considerations of picking between an advisory service or a software-as-a-service solution. https://lnkd.in/eqidjufe

In addition to the IMF Spring Meetings serving as backdrop for critical discussions and global coordination in response to global economic challenges, the week of April 15 concluded with progress on several notable initiatives at national and regional level including the New Zealand Reserve Bank's consultation on key considerations for a possible #cbdc, the European Supervisory Authority's formalization of a joint governance model for the development of its Data Point Model Standard and the release of a further #dora consultation on the operations of joint examination teams as well as a new BCBS consultation on the role of #climate scenario analysis for enhancing climate-related financial risk management. The key highlights available now in this week's edition of the Global Regulator & Central Bank News Roundup. #financialservices #financialregulation #financialsupervision #financialinnovation

Some rules of liquidity risk of banks 1.Liquidity risk can neither be completely avoided nor completely hedged. 2.you always have more than you need until you don’t. 3. Liquidity risk is prospective. 4.Liquidity is a consequential risk.liquidity is often the proximate cause of failure but never the underlying cause. 5. Scenarios are the language of liquidity risk. Liquidity risk cannot be discussed—let alone measured or managed—outside of the context of scenarios. 6.Imprudent liquidity risk measurement and management is indistinguishable from prudent risk measurement and management until events trigger a problem. A strong economy in general and strong asset prices in particular can mask risks. 7. Too little liquidity can kill a bank suddenly, but too much liquidity will kill a bank slowly. 8.Rewards from good liquidity risk management are not directly observable. 9. Regulation is necessary but insufficient. No smart group of people can ever design a set of rules that some other group of smart people cannot think of a way to circumvent. capital is not the solution for liquidity risk. (Ref: Liquidity Risk Measurement and Management:Leonard Matz)

Basel III Capital Accord : Liquidity Risk Monitoring Tools In The Banks Besides prescription of leverage ratio to constrain leverage and two liquidity ratios viz Liquidity Coverage Ratio (for managing short term liquidity upto 30 days) and Net Stable Funding Ratio (for managing liquidity over one year horizon), the Basel III Framework prescribes five monitoring tools /metrics for better monitoring a bank's liquidity position. These metrics along with their objective are detailed below: ▪️Contractual Maturity Mismatch The contractual maturity mismatch profile identifies the gaps between the contractual inflows and outflows of liquidity for defined time bands. These maturity gaps indicate how much liquidity a bank potentially need to raise in each of these time bands if all outflows occurred at the earliest possible date. This metric provides insight into the extent to which the bank relies on maturity transformation under its current contracts. ▪️Concentration of Funding This metric is meant to identify those sources of funding that are of such significance, the withdrawal of which triggers liquidity problems. The metric thus encourages the diversification of funding sources recommended in the Basel Committee's Sound Principles. This metrics aims to address the funding concentration of banks by monitoring their funding from each significant counterparty, each significant product / instrument and each significant currency. ▪️Available Unencumbered Assets This metric provides supervisors with data on the quantity and key characteristics of banks' available unencumbered assets. These assets have the potential to be used as collateral to raise additional secured funding in secondary markets and / or are eligible at central banks. ▪️Market-related Monitoring Tools This includes high frequency market data that can serve as early warning indicators in monitoring potential liquidity difficulties at banks. ▪️Liquidity Coverage Ratio by Significant Currency This metric provides supervisors with data related to the liquidity indicators of the significant currency at the banks. A currency is considered as significant if the aggregate liabilities denominated in that currency amount to 5% or more of the bank’s total liabilities. This statement includes only those assets and liabilities which includes the contingent liabilities too which are denominated in the specific significant foreign currency. Thanks for reading….