About a-team Marketing Services
The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Opinion: Will New Liquidity Reporting Lead to a Big Chill?

Subscribe to our newsletter

By Georges Bory, Co-Founder and Managing Director, Quartet FS

The collapse and bankruptcy of Lehman Brothers in 2008 is an extreme example of what can happen when the ratio of liquidity holdings to potential debt is inadequate. The bank was hit with a liquidity crisis as a result of the collapse in the sub-prime mortgage market, compromising the liquid resources it had available to pay its creditors. Since this high profile collapse, the liquidity arrangements of financial institutions have been under increasing scrutiny, externally from regulators as well as internally.

These regulatory bodies have responded to the liquidity crisis by publishing new guidelines (as part of Basel III) to manage the various forms of liquidity risk. In January 2013, we saw these guidelines taken to the next level, with the introduction of the Basel III Liquidity Coverage Ratio (LCR) – which enhances monitoring measures to bolster short-term resilience to liquidity events.

However, this latest addition to the regulatory canon does not require the measurement or reporting of intraday liquidity risk profiles – a situation set to be rectified on the January 1, 2015. In under a year, the Basel Committee on Banking Supervision (BCBS), in partnership with the Committee on Payment and Settlement Systems (CPSS), will require monthly intraday liquidity measurement and reporting from internationally active banks. This change will further increase internal and external visibility of how a bank’s liquidity ratio reacts in both normal and stressed conditions. Banks will have to demonstrate that their payment and settlement systems will continue to function as normal, even if there is a significant credit downgrade or market shift.

The immediate challenge

These new intraday liquidity reporting measures mean increased pressure on the banking technology being used by risk managers and analysts to collect and deliver liquidity data.  A recent report into counterparty data analysis and reporting by the Senior Supervisors Group highlighted the flaws in banks’ existing IT structures, meaning, at least when it comes to liquidity reporting, the situation needs to be rectified urgently. As it stands, banks are producing pre-canned liquidity reports, which require recalibration to display newly inputted data.  Due to this inflexibility, this type of report is of limited use when it comes to future intraday reporting.

A reporting refresh

To meet the new liquidity reporting requirements, financial institutions will need to deliver intraday liquidity reporting using a range of new metrics. These were introduced by the BCBS and the CPSS to increase the scope of liquidity data being provided, with reports set to include liquidity indicators such as total payments settled and received, timing of intraday settlements, intraday liquidity usage, intraday credit lines extended to customers, and available liquidity at the start of the business day. Not only that, but institutions will be asked to compile and execute various stress tests and sample scenarios based on these monitoring parameters.

Regulatory oversight of liquidity will not be limited to monthly reporting, however. Regulators will now be contacting financial institutions without warning, enquiring about how they monitor liquidity ratios. Possible questions include: “Who are the top 10 counterparties that represent 80% of the bank’s funding structure?” or “who are the top 100 private customers with demand deposits showing a maturity of less than a month?” Without knowing what information regulators will request, banks need to be ready to produce ad-hoc reports on-the-fly, a situation which means that the pre-aggregation of data (a tactic the current reporting structure depends on) is no longer a reliable method of meeting reporting obligations.

The future is in-memory

An emerging solution to help support the intraday liquidity reporting transition is in-memory aggregation engines combining transactional and analytical processing. This is due to their ability to simulate cash-flow scenarios, across asset classes, from multiple data source streams – all on the fly. Delivering liquidity ratios and graphical representations in milliseconds, as well as an ability to render adjusted scenario forecasts, means that even complex information can be quickly and easily parsed by analysts. Metrics such as the LCR, or expected liquidity exposure, can be produced in real time according to, for example, currency fluctuations – a facility of increasing importance in a fast trading environment.

With the January start date fast approaching, those in charge of the reporting and data management in banks need to be allocating the correct resources to tackle these upcoming regulations – implementing technology as a supporting solution. As mentioned previously, the report on counterparty data shows that capabilities in data management and analytics are behind regulators’ expectations in major banks. Without the appropriate technology, some institutions may risk the wrath of regulators, if not equipped to handle the new liquidity reporting requirements.

Subscribe to our newsletter

Related content


Recorded Webinar: The future of KYC and AML: How to tackle the challenges and gain the opportunities of perpetual KYC

Perpetual Know Your Customer (or pKYC) could be a game changer for client onboarding, due diligence and financial crime compliance. Moving on from today’s reactive approach that conducts client KYC processes at onboarding and typically at one, three and five year intervals, pKYC takes a proactive approach, creating a digital KYC profile and dynamically refreshing...


Asia-Pacific Practitioners Gear Up for A-Team’s RegTech APAC Conference This Week

This week sees the first ever A-Team RegTech Summit for the Asia-Pacific region. Building on the success of A-Team’s RegTech Summit conferences in London and New York over the past four years, this virtual event is the first of what’s expected to be a series of events in the region, including in-person conferences when appropriate. RegTech...


TradingTech Summit Virtual (Redirected)

TradingTech Summit (TTS) Virtual will look at how trading technology operations can capitalise on recent disruption and leverage technology to find efficiencies in the new normal environment. The crisis has highlighted that the future is digital and cloud based, and the ability to innovate faster and at scale has become critical. As we move into recovery and ‘business as usual’, what changes and technology innovations should the industry adopt to simplify operations and to support speed, agility and flexibility in trading operations.


ESG Data Handbook 2022

The ESG landscape is changing faster than anyone could have imagined even five years ago. With tens of trillions of dollars expected to have been committed to sustainable assets by the end of the decade, it’s never been more important for financial institutions of all sizes to stay abreast of changes in the ESG data...