As a response to the inherent weaknesses in the bank’s liquidity risk management and maturity transformation processes, the Basel Committee on Banking Supervision (BCBS) devised Basel III as a package of measures which included for the first time global harmonized liquidity management metrics including the development of two minimum liquidity standards being the Liquidity Coverage Ratio (LCR) and the complementary Net Stable Funding Ratio (NSFR). The NSFR looks to promote funding stability over a longer term timeframe by encouraging the funding of business activities with more stable sources of funding and discouraging over reliance on short-term wholesale funding.
The regulatory compliance requirement of NSFR, over and above the other regulatory and internal management requirements of liquidity risk management, once again emphasizes the importance of deploying and maintaining a single core liquidity engine that is able to effectively meet all the diverse needs of the banks under the same hood. Banks are now compelled to keep up with this new environment where functional richness needs to be combined with technological robustness to enable quicker, more efficient decision-making and compliance processes.
The in-built logic required to specifically address NSFR reporting requirements and its related monitoring tools are housed in AxiomSL’s award winning Liquidity solution suite. The solution handles the various complications of liquidity measurements such as, multiple netting, encumbrance maturity profile, consistency with LCR calculations, derivative transactions and margin requirements as well as balance sheet interdependence etc. AxiomSL’s comprehensive Liquidity solution addresses all the above challenges while setting up a solid foundation to meet future regulatory changes.
Its data-driven multi-jurisdiction platform provides highly configurable and customizable capabilities (rule-based calculations, aggregations, etc.) and drill-down allowing for full audit-trail to data sources. The end-to-end solution provides a single unified framework to meet liquidity risk requirements with features such as data loading, movement (cash-flow) generation, classification and metrics calculations and reporting.
As a result, the solutions deliver data integrity, traceability and transparency throughout the entire process while addressing the complex demands of liquidity risk management and reporting by providing flexible and scalable frameworks.
- Enterprise-wide platform approach unifies data models without forcing expensive data transformation into common data formats
- Strategic data-driven solution with full drill down capabilities ensuring consistency, transparency and traceability
- Integrated modular calculation engine with full liquidity metrics including NSFR
- Advanced reporting templates that complies with the multi-jurisdiction and multi-faceted regulatory reporting requirements
- Proven and performance tested across multi-tiered banks of varying complexities in different geographies
Beyond generic liquidity risk requirements, banks’ will also be facing additional NSFR specific challenges when dealing with calculations, monitoring and compliance:
- Meeting complex and evolving multi-jurisdiction, multi-geographical reporting requirements
- Consolidating data originating from different formats, frequencies, scopes, treatments, processes and locations
- Obtaining the cash flow records for the complete life-time of the instrument
- Integration with other Basel liquidity metrics, LCR, and other monitoring tools
- Complete and transparent rules for classification and computation of NSFR
- Monitoring the encumbrance profile of all the assets and collaterals under securities transactions
- Obtaining a consistent and logical view of all assets and liabilities in the balance-sheet that could depend on one another
- Ensuring that short term liquidity ratios are in sync with longer term stable funding and lending
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