Managing Short-term and Long-term Liquidity More Effectively
Interview with Gopi Devaraaj, Vice President, US Liquidity Reporting at Credit Suisse
Since the Basel III liquidity rules were finalized in the U.S. last year there has been a lot of uncertainty and new challenges for the industry. New requirements for short-term and long-term liquidity as well as the Supplementary Leverage Ratio are forcing banks to rethink their liquidity management strategies and make considerable investments in infrastructure and technology.
Gopi Devaraaj, Vice President, US Liquidity Reporting at Credit Suisse recently spoke with GFMI about key topics to be discussed at the upcoming 2nd Annual Liquidity and Funding Risk Management Conference taking place October 5th-7th, 2015 in New York.
What are the key challenges in liquidity management for banks in the US today?
The key challenges in effective liquidity management are:
1. Develop alternative sources of funding given the stringent Fed regulations, especially the LCR and the NSFR.
2. Increasingly difficult access to unsecured funding given the reduced appetite for US bank bonds due to capital requirements associated with non-HQLA securities.
3. Building a strategic capability to report on various liquidity metrics in a timely fashion
4. Accuracy of the underlying product cash flows for all material and smaller IHC entities.
How are the foreign banks operating in the US adapting to the challenging regulatory environment?
The foreign banks are adapting their infrastructure and governance to adhere to the IHC guidelines as outlined in the Enhanced Prudential Standards of the Dodd Frank Act for Foreign Banking Organizations. Key aspects include the creation of an IHC for all US subs, establishing a governance structure for the IHC, liquidity reporting including the LCR / NSFR and internal stress testing for the IHC and taking prompt actions resulting from stringent monitoring of those metrics when any deficiencies are found.
What is the impact of intermediate holding companies (IHCs) on liquidity management in the US?
Previously, the US subsidiaries of FBOs have been mainly focused on only their core businesses and supporting their parent company’s activities, without being too transparent to US regulators. The IHC framework requires them to be more organized, US-centric in terms of maintaining capital standards, liquidity risk management, be on par with large US banks in terms of infrastructure and reporting standards and all of the above supported by a firm governance structure.
The NSFR: What are the key considerations?
The NSFR has been developed with a view to reduce banks’ reliance on short term wholesale funding. It is the ratio of Available Stable Funding within one year (Liabilities and Equity) to Required Stable Funding (Assets and Off Balance Sheet exposures) and multiplying each of them by a factor. To maintain NSFR > 100%, banks would have to increase stable funding greater than a year and create an asset mix that can be funded with less stable funding.
What do you think you would gain by attending the conference?
I would like to hear industry perspectives on some of the challenges concerning liquidity risk management in light of the constantly changing regulatory landscape and the strategies they have undertaken to mitigate them yet keeping the bank profitable.
At this GFMI conference, the practical case study presentations focus on the effective management of risk, whilst adding value to your organization. Our speaker discussions will help financial institutions optimize their management of fourth parties, and ensure efficient ownership of third party risk, to effectively manage all third party relationships and reduce the overall risk to the enterprise.