Liquidity Risk

The risk comes from not being able to sell an asset quickly. Some assets that come with a potential liquidity risk include real estate, cars, limited partnerships, or an ownership interest in a small business. In contrast, investments that don’t have liquidity risks include stocks of publicly traded companies, mutual fund shares, or futures or options contracts that are traded on an exchange.


Regulatory Reporting

The current proposals include nine new regulatory reports/data items for liquidity risk, which will replace the existing liquidity data items including FSA010 Mismatch Liquidity and FSA013 Stock Liquidity for banks and FSA011 Building Society Liquidity for building societies. The tight timetable and uncertainty around the exact requirements significantly increases the risk of firms creating unreliable, un-maintainable report generation systems and of missing the implementation deadline.

In particular the Enhanced Mismatch Report (EMR) must be submitted on Sunday at the end of the reporting week. Although it is probable that the Sunday due date may change by a day or two, the systems and process used to generate this report (and the other weekly reports) will require a high degree of automation and reliability if firms are to have any chance of submitting on time. In times of market turmoil or stress the EMR may need to be submitted daily, making the need for automation even more important.

Liquidity Risk Management solution for regulatory reporting, stress testing and analysis, data management and management reporting Risk Management solution for regulatory reporting has a proven track record in this area, offering functionality for both Bank of England and FSA reporting including the existing FSA liquidity reports such as FSA010 All new reports/data items will be available in the Risk Management solution with the applicable data validation Reports are already defined waiting final details from FSA EMR daily flows report (submitted weekly) All reports will be automatically generated by Report Generator with on-screen results for users to check and investigate problems. Risk Management solution offers full support for Mandatory Electronic Reporting (MER), including creation of XML files and direct communication options for FSA electronic reporting via GABRIEL.


Stress Testing

The new liquidity rules require frms perform extensive stress testing. Firms will need to be able to conduct regular stress tests in order to identify sources of potential liquidity strain and to ensure that current liquidity exposures conform to the agreed risk tolerances. A firm must be able to analyze the separate impact of possible future liquidity stresses on its cash flows, liquidity position, profitability and solvency. When performing these stress tests firms must consider the impact on wholesale funding risk, retail funding risk, intra-day liquidity risk, intra-group liquidity risk; cross-currency liquidity risk, off-balance, sheet liquidity risk, franchise-viability risk, marketable assets risk, non-marketable assets risk and asset diversification risk.

Riske Management solution for stress testing has a proven track record in liquidity modeling. It  handles both contractual and behavioral cash flows and has powerful modeling capabilities that enable firm to produce user defined reports.


Data Management

Risk Management solution for Data Management is a clearly defined, common, standardized data model that provides a single repository for regulatory and risk information (including the data required for and the results of liquidity stress testing). The single interface into Data Foundation simplifies integration from lots of systems from different departments Data Foundation provides a comprehensive Data Dictionary for clients to reference to make interfacing to our solution easy and efficient Data validation is a core part of the Risk Management solution, so Risk Management offers firms full flexibility.

Management Reporting

Risk Management solution for Management Reporting enables business users to create bespoke reports using the data held in Data Foundation, including management reports Data held in Data Foundation can be interrogated and presented by dashboard to enable monitoring of liquidity data Since all regulatory and management information reports are generated from the same database there are no reconciliation issues which is a key requirements of Basel II, Pillar 2.