Post on 11-Jun-2020
Improve liquidity management under a regulation framework
Nicolas Kunghehian
24th May 2011
Moscow, 24th May 2011
From Basel II to Basel III
» Too much leverage
» Excessive credit growth
» Insufficient liquidity buffers
» Weaknesses of risk management systems
» Too much systemic risk
» Greater capital buffers
» Capital of higher quality
» Liquidity buffers
» More accurate measurement of risks (e.g.
market risks)
» Addressing systematically important banks
Moscow, 24th May 2011
What is new in Basel III?
Moscow, 24th May 2011
Basel III squeezes capital !
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» More strict rules on capital, lowering it (own funds review)
» Higher capital requirements (updated calculation rules increase RWA for some asset classes)
» Increased capital ratios (Core Tier 1, Tier 1, Conservation buffer, Countercyclical buffer)
Moscow, 24th May 2011 5
Results of the QIS: Capital Ratios
Source: http://www.bis.org/publ/bcbs186.pdf
Moscow, 24th May 2011 6
Results of the QIS: Liquidity Ratios
Source: http://www.bis.org/publ/bcbs186.pdf
Moscow, 24th May 2011 7
Liquidity coverage ratio (LCR) – example
*Additional requirements are also considered as outflow (e.g. 100% of outstanding liquidity facilities to non fin. Corporate, etc)
** 100% of planned inflows from performing assets
Assets 470
Cash 50 Stock of high quality liquid assets 150
Gov. Bonds 100
Financial Institution Bonds 50
Loans 270
Liabilities and Equity 470 Run-off
factor
Outflows* Inflows** Net
outflows
Stable retail deposits 100 7.50% 7.5
Less stable retail deposits 100 x 15% = 15 -
Unsecured Wholesale Funding (Non fin.
Corporate with no operational relationship)
170 75% 127.5
Equity 100 150.0 20 130
LCR 115%
v
v
Moscow, 24th May 2011 8
Net stable funding ratio (NSFR) – example
Assets 470 Required stable
funding factor
Required stable
funding
Cash 50 0% 0
Gov. Bonds 100 5% 5
Loans (to retail) 320 85% 272
277
Liabilities and Equity 470 Available stable
funding factor
Available stable
funding Stable retail deposits 100 85% 85
Less stable retail deposits 100 70% 70
Unsecured Wholesale Funding (Non fin.
Corporate with no operational relationship)
170 x 50% =
85
Equity 100 100% 100
340
NSFR 123%
Moscow, 24th May 2011
Higher costs… for a better risk control performance
Operational reports
• Limit monitoring
• P&L reports
• Budgeting reports
• Single portfolio reports
Risk reports
• Credit risk
• Liquidity risk
• Market risk
• Operational risk
Regulatory reports
• Local reports
• Group reports
Internal reports
• Specific risk drivers
Board of Director
• Daily summary report
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Moscow, 24th May 2011
Higher costs… and a better allocation
10
Assets 470
Cash 50 Stock of high quality liquid assets 150
Gov. Bonds 100
Financial Institution Bonds 50
Loans 270
Liabilities and Equity 470 Run-off
factor
Outflows* Inflows** Net
outflows
Stable retail deposits 100 7.50% 7.5
Less stable retail deposits 100 x 15% = 15 -
Unsecured Wholesale Funding (Non fin.
Corporate with no operational relationship)
170 75% 127.5
Equity 100 150.0 20 130
LCR 115%
v
vCost of holding these assets:
C = X% per year x 150
C is allocated
depending on the
outflows generated
by the instrument
» Short term assets
» Long term liabilities
» Assets eligible to the Buffer
Negative FTP component
» Risky assets
» Unsecured wholesale funding
Positive FTP component
Moscow, 24th May 2011
Conclusions
» More constraints for banks
– More capital of better quality
– Liquidity buffers
» A great opportunity
– Shared ownership
– Better risk management
– Better performance management
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•Planning•Budgeting
•Limit monitoring
•Action plans
•Modeling
•Forecasting
Risk Calculation
Reporting
StrategyOptimization
Moscow, 24th May 2011
Contacts
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Nicolas Kunghehian
Associate Director
Moody's Analytics
436, Bureaux de la Colline
Bâtiment E - 12e étage
92213 Saint-Cloud Cedex, France
+33 (0) 4.56.38.17.05 direct
+33 (0) 6.80.63.83.34 mobile
nicolas.kunghehian@moodys.com
www.moodys.com
Moscow, 24th May 2011 13
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Moscow, 24th May 2011 14
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