Liquidity Risk Whitepaper

Some Practical Challenges Remain, but this is the Time to Automate and Integrate

About this Paper:

In recent years, increased focus has been placed on regulatory compliance regimes based on standardized metrics. This focus has produced an unintended consequence, in that many bank managers cannot afford adequate time and resources to develop and refine their own internal approaches to measuring and monitoring risk, and those who can afford it, may feel less motivated to do so. This holds true in all areas of risk management. For example, the UK regulator’s proposals for Pillar 2 liquidity appear to pile on even more regulatory pressure, beyond the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), which are both important elements in the Basel Accords. It is our view that the proposals for cash flow mismatch risk (CFMR), signal an era of relative calm in the sea of regulations. Banks should exploit this hiatus to implement integrated solutions covering regulatory compliance, internal risk management, and risk-adjusted pricing.

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