Liquidity Under CRD IV – What can we do to mitigate the burden?

Liquidity Under CRD IV ––63 banks and building societies attend webinar

Feedback used in response to CP 27/14

Banks and Building Societies well understand the need to be fully informed of any proposed changes to key regulatory frameworks such as CRD IV. Liquidity has become a primary driver under the new regulations and LCR reporting and stress testing will have significant impact, especially on smaller, more simplified firms.

To help bring clarity to the proposed changes and to facilitate debate around the key issues, Jeremy Palmer (Head of Financial Policy) from The Building Societies Association (BSA) in conjunction with ALMIS International, hosted a highly informative and interactive webinar on Wednesday 18th February, attended by 63 delegates.

The webinar explained the proposals and their likely impact but also discussed BSA amendments to mitigate these changes and how firms can effectively comply by using a fully automated and integrated system such as ALMIS.

Here’s a brief summary of the key issues and highlights of the debate.

What’s the history?

Basel proposed a liquidity regime in late 2010 which the EU hard wired into CRD IV– quantitative pillar 1, pillar 2 and reporting under COREP. This was supplemented by TS drafted by the EBA and now, CRD IV plus TS will replace the PRA regime in BIPRU 12. CP 27/14 explains how PRA will make the transition.

Headline Proposals in CP 27/14

The current simplified regime will be revoked with the LCR Glide path moving from 80% in October 2015 to 100% by January 2018.

The capacity to report the LCR on a daily basis will be included and the reporting burden will increase further as the FSA 047/048 will be maintained for another two years.

Changes to categorisation will mean that pre-positioned non-HQLA cannot be in included in LCR/Pillar 2 calculations but can be included in OLAR.

All firms but particularly simplified firms will need to increase the level of stress testing

What’s the likely impact on Banks & Building Societies?

Liquidity calculations and reporting will become much more onerous and complex and the number of liquidity stress risk drivers will increase – especially for simplified firms.

Using ALMIS to meet the challenge – automation is key

Regardless of the final detail of the proposed changes, there will be an increase burden in the complexity, volume and frequency of calculating and reporting the LCR and stress testing liquidity. ALMIS International has created a modular, integrated system that deals effectively with the proposed changes by:

• Auto-population of the LCR

• Utilising the same data sets for liquidity stress testing and regulatory reporting

• Capability to understand liquidity risk drivers

• Forward looking and dynamic analysis

• Combine capital and liquidity stress test

For a video of the webinar presentation and accompanying slides contact Jenna Haston on 0131 452 8898