As part of CRD IV Banks within the European Union (EU) have to calculate and report three specific Liquidity Ratios:
  • Liquidity Coverage Ratio (LCR);
  • Net Stable Funding Ratio (NSFR); and
  • Additional Liquidity Monitoring Metrics (ALMM).
These ratios have to be calculated based on specific guidelines and involve the processing of large volumes of data within very strict processing and reporting deadlines. ALMM for example demands the processing of daily account data for each working day of the reference month (period). An automated solution is therefore mandatory for processing and preparing these liquidity ratios.

The Liquidity Ratios are new to Basel III (CRD IV) and as such undergo more frequent amendments to their specifications and underlying Implementing Technical Standards (ITS) including the XBRL Taxonomies and Validation Rules.
The Liquidity Coverage Ratio (LCR) checks the short-term resilience of the liquidity risk profile of the bank by ensuring that they have sufficient high quality liquid assets to survive a significant stress scenario lasting 30 calendar days.

LCR has two components, the stock of High Quality Liquid Assets (HQLA) and the total net cash outflows (cash inflows are subject to a cap of 75% of total expected cash outflows)

The final goal is to have enough stock of HQLA to cover the total net cash outflows over 30 days (current minimum percentage for 2015 is 60%, final minimum percentage of 100% in 2019)

The Net Stable Funding Ratio (NSFR) checks the medium and long-term funding of the assets and activities of banking organizations

It establishes a minimum acceptable amount of stable funding based on the liquidity characteristics of an institution’s assets and activities over a one year horizon

It ensures that long term assets are funded with at least a minimum amount of stable liabilities in relation to their liquidity risk profiles

The structure of the ratio is designed to address liquidity mismatches

It provides incentives for banks to use stable sources of funding

The final goal is to have available amount of stable funding that exceeds the required amount of stable funding over a one-year period of extended stress

The Additioal Liquidity Monitoring Metric (ALMM) as its name implies is more of a set of metrics (rather than a ratio) that have been designed to monitor the areas of liquidity risk that fall outside the scope of LCR and NSFR.

These metrics ensure that all potentially useful liquidity data will be collected by the banks and used for their internal risk management procedures and reporting to the supervisors.

The first part relies on maturity ladders and it can be considered as an “extension” of LCR and NSFR.

The second part focuses on identifying risks (concentration of funding by counterparty, concentration of funding by product type,  concentration of counterbalancing capacity by issuer/counterparty, prices for various sources and lengths of funding,  rollover of funding)

Prognosys Solution through its unique approach in providing a single integrated solution for all Regulatory Compliance Reporting includes specialised modules for the CRD IV Liquidity Ratios.

All the technicalities and challenges related to the processig of large data volumes, classifications of data as well as the specificities of XBRL Reporting and Validation are handled seemlessly through our solution.

The main advantage however is that data are only provided once and they are being used for the production of all Regulatory Reports (including but not limited to CRD IV Liquidity Ratios). This in turn means that implementation times are significantly reduced as well as processing times. Furthermore, the unique design of our solution allows for cross-referencing and validating data between the Ratios and other CRD IV Return (e.g. COREP and Large Exposures) which results in higher quality outputs.
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