Work Session Liquidty Risk

1 SWIFT Operations Forum Americas - March 5, 2013

James Wills

SWIFT

TITLE OF YOUR SESSION

Yoko Horio

The Clearing House

Ray Mulhern

Wells Fargo Bank

Greg Malosh

BNY Mellon

SWIFT Operations Forum Americas (SOFA James Wills – SWIFT Ray Mulhern – The Clearing House Yoko Horio – Wells Fargo Bank Greg Malosh – BNY Mellon March 5, 2013

Liquidity Risk: What is the evolving landscape?

New liquidity risk frameworks Regulatory systems and control requirements

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Position management

Risk management

Liquidity Management

• Flow control (identify, prioritize, re-route, block)

• Predictive analytics measure daily in/outflows, anticipate intra-day timing

• Global versus local • Increased focus on intra day/real-

time position management for both cash and collateral

Regulatory reporting: (i.e. daily in/outflows by counterparty)

Stress tests: historical analysis contributing to CFP, identify unexpected movements, set-up early warning indicators

SWIFT survey 2010: - 66% are investing in the foundation layer of liquidity operations

Objectives of the Real-time Liquidity reporting rule book: addressing current issues

4 Source: SWIFT 2011 survey on liquidity risk

INTRADAY LIQUIDITY ?

March 5, 2013

Intraday Liquidity

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Why Liquidity? Why now?

Macro View Today – FRB Reserve Levels – Bank and Corporate Treasury Holdings – U.S. LCR Shortfall – U.S. Interest Rates – Bank loan to deposit ratios

Strategic View: What happens when . . .? – Interest rates climb – FRB Reserve levels drop – U.S. implements Basel III Liquidity Framework – Bank loan to deposit ratios rise – U.S. LCR shortfall widens

Now is the time for action – “Follow the sun” : central bank liquidity model – Liquidity portability: private infrastructure model

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CHIPS

ACCT

ACCT

ACCT

ACCT

CHIPS

PAYMENTS MESSAGES RECEIVED

BANK

BANK

BANK

PAYMENTS MESSAGES

SENT

BANK

BANK BANK A B

A B

A C

B

DECISIONING, CLEARING, SETTLING ENGINE

SWIFT

BANK

BANK

BANK

BANK

SWIFT

BANK

BANK

BANK

BANK

MULTICURRENCY ADAPTER

$

X

$

X

$

X

Hybrid Model: Two Clearing and Settlement Infrastructures*

Other

* Scalable for multiple currencies

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Intraday Liquidity: A Perspective of a Global Correspondent Bank

Yoko Horio March, 2013

Wells Fargo Bank, N.A. Member FDIC.

Intraday Liquidity

Intraday liquidity is the life‐blood of global payments, clearing, and settlement (PCS) systems – it is absolutely critical for the health and survival of the infrastructure and, without sufficient liquidity, the infrastructure will simply not function properly, if at all.*

*Intraday Liquidity Flows ‐ Report of the Payments Risk Committee, March 30, 2012, http://www.newyorkfed.org/prc/prc_120329.pdf

Wells Fargo

Regulatory

BIS BSBS: Principles for Sound Liquidity Risk Management and Supervision – September, 2008 “A bank should actively manage its intraday liquidity positions and risks to meet

payment and settlement obligations on a timely basis under normal and stressed conditions and thus contribute to the smooth functioning of payment and settlement systems.” (Principle 8)

Basel III: International framework for liquidity risk measurements, standards and monitoring -December, 2010 “Banks and regulators should be aware that the LCR stress does not cover expected or

unexpected intraday liquidity needs that occur during the day and disappear by the end of day….”

BIS BCBS: Monitoring indicators for intraday liquidity management (Consultative document) – July, 2012

Wells Fargo

Standards for Indicators and Reporting

• Unintended consequences: Influence on payment behaviors: Good or bad behaviors?

• Burdensome reporting Direct and indirect participants

• Focus on correspondent banking

Wells Fargo

Liquidity for Customer Payments

Customer Account

Balance at Correspondent

Bank

Intraday Credit Facility Offered

by Correspondent

Bank

Correspondent Bank Internal

Liquidity Availability

Payment System

Liquidity Availability

Market Liquidity

Availability

Wells Fargo

Greg Malosh – BNY Mellon

Client Impact

What is the client impact?

• Fundamental liquidity management principles remain the same • Challenging rate and risk environments continue to influence

trends • Increased scrutiny driven by regulatory requirements • Strong emphasis on intraday liquidity, collateral, and use of

credit • Strong need to see balances and move funds globally • Predictability of balance flows through trend analysis becoming

critical

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Q&A

? SWIFT Operations Forum Americas - March 5, 2013 15

Thank you!

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17 SWIFT Operations Forum Americas - March 5, 2013