SWIFT solutions for
Liquidity risk management
Catherine Banneux, Senior Market Manager, SWIFT
Bart Claeys, Product Manager, SWIFT
Liquidity risk management: The drivers
• Global financial crisis
• More stringent liquidity risk regulations
– Global: BIS
• Principles for Sound Liquidity Risk Management and Supervision (2008)
• Principles for sound stress testing practices and supervision (2009) International framework
• Higher global minimum capital standards (9/2010)
– Europe CEBS
• Guidelines on Liquidity Buffers & Survival Periods (2009)
• Guidelines on Stress Testing (CP32 – 2009)
– US Interagency policy statement on funding and liquidity risk management
(03/2010)
– FSA - Strengthening liquidity standards (Policy Statement19/6 – 10/2009)
• Related regulations: regulatory pressure towards central clearing for derivatives
(e.g. Dodd – Frank act in the US – 2010)
Liquidity risk management - October 2010
Regulatory systems and control requirements
Bottom up risk strategy implementation
Risk
management
Management
capability
Position management,
both current and predictive
Liquidity risk management - 9 September 2010
• Regulatory reporting (i.e. daily
in/outflows by counterparty)
• Stress tests: identify unexpected
movements, set-up early warning
indicators, calculate forward exposure
• 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
position management for both
cash and collateral
SWIFT 2010 Survey
80% of Financial Institutions are investing in improving
liquidity risk management
Source: SWIFT survey, June 2010. 255 treasury, liquidity and liquidity risk managers at financial institutions.
Full survey report available from swift.com
Liquidity risk management - October 2010
SWIFT 2010 Survey
Liquidity Risk Management 4 Major operational issues
Data
integration
Intra-day
visibility
Need for:
- Standardisation (80%)
- Integration services (57%)
Analytics &
forecasting
Need to
improve
Liquidity risk management - October 2010
Global
position
68% have difficulty building
timely firm-wide position
87% want more traffic data
and business insights
TO REDUCE
60% have less than
50% transactions reported
intra-day
•
•
•
•
•
Overdraft charges
Intra-day credit lines costs
Oversized liquidity buffers
Costly emergency funding
Risk non-compliance
SWIFT Services that can support your
liquidity risk management
Intra-day
visibility
Data
integration
Consulting
services
Analytics &
forecasting
Watch
Liquidity risk management - October 2010
SWIFT
solutions
• Intra-day reports
• Early advices
• Underlying process
automation
Global
position
FINInform
The Dynamic Interdependent ECO System
Liquidity Management
Brokers
Users of liquidity
information.
Need info online
« As it Happens »
Providers of liquidity
information.
Some monitoring
tools, some without...
Banks
Corporates
Fund Managers
other clients
Global Financial Institutions
CCP
Providers of liquidity
information.
Some monitoring
tools, some without...
Liquidity risk management - October 2010
CSD
Securities
MI
ACH
RTGS
Interoperability of standards & systems should achieve better liquidity management
Retail MI
SWIFT supports integrated & real-time
liquidity management
Liquidity Function
Management
Predictive
• Notifications
• Monitoring reports
Current
Liquidity risk management – October 2010
Major Flows - Examples
• Payment flow control : cancel, modify priority
• Modify standing order
• Get/return reservation
• Liquidity credit transfer
• Limit management
• Collateral substitution
• Notice to receive
• Trade notification/ Trade leg statement
• Pending transactions report
• Pending/ forecasted balance report
• Margin report/ Collateral &Exposure statement
• Monitor all in/out payments
• Confirmation of debit/credit
• Intra-day cash transaction report (*)
• Intra-day securities holdings report (*)
(*) Including underlying cash & securities collateral
Overview of the high value payment market
infrastructures using SWIFT
North
America
Canada
US (TCH)
Central & Latin
America
Bahamas
Barbados
Chile
Dominican Rep.
Guatemala
Trinidad & Tobago
Venezuela
Liquidity risk management – October 2010
Western Europe
Denmark
EBA Clearing
TARGET2
Norway
Sweden
Switzerland
UK
Central & Eastern
Europe
Albania
Azerbaijan
Bosnia & Herzegovina
Bulgaria
Croatia
Hungary
Romania
Middle East
Bahrain
Israel
Jordan
Kuwait
Oman
UAE (DIFC)
Africa
Angola
Algeria
Botswana
Central African States (BEAC) Egypt
Ghana
Kenya
Lesotho
Mauritius
Morocco
Namibia
Senegal
Sierra Leone
South Africa
Swaziland
Tanzania
Tunisia
Uganda
Zambia
Zimbabwe
West African States (BCEAO)
Asia Pacific
Australia
Fiji
Hong Kong
New
Zealand
Philippines
Singapore
Sri Lanka
Thailand
Live systems as of September 2010
Systems with advanced monitoring
Improvement of RTGS liquidity management
functions: A key challenge for the industry
For the MI operating the RTGS
•
•
•
•
•
•
MI liquidity movements
Forced payments
Queue management
Gridlock processing
Increase liquidity against collaterals
Change the limit
For the RTGS Direct participant
•
•
•
•
•
Liquidity risk management – October 2010
Monitor their queues and accounts
Suspend or cancel their own payments
Change payment priority
Change alerts
Transfer funds between their accounts
SWIFT Intra-day Cash-Reporting Service:
Standardised Data - Improved liquidity visibility
SWIFT (ISO) Business Standards to support
intra-day/real time information
MT
Debit /credit
confirmation
(MT 900/910)
MX
Interim
transaction
report
(MT 942)
Debit/credit
Notification
(camt054)
Available
November
2011
Interim
balance report
(MT 941)
Account report
(camt 052)
NotificationToReceive (camt.057)
NotificationToReceiveStatusReport (camt.059)
NotificationToReceiveCancellationAdvice (camt.058)
• Business practice development (rule book)
• New Third party application certification
Liquidity risk management – October 2010
Intra-day Reporting
• Structured, granular information on
underlying transactions,
transaction date/time
• Based on threshold
• Within specific time ,event-driven or
periodic
Position Management
• Additional account and currencies
balances/projected balance
SWIFT Collateral Management Service:
Standardised Data - Improved liquidity visibility
Existing Intra-day Reporting Messages
Current position
• MT535: Holdings of underlying securities collateral
• MT 942 /camt052: Holdings of underlying cash collateral
New Intra-Day/Real-time Messages
• Cross Asset Class Margin Calls
Predictive position
ISO 20022
• Margin Disputes
• Collateral Reports
Available
• December 2010 (pilot)
• March 2011 (live)
Liquidity risk management – October 2010
SWIFT’s solution for CCP to clearing member
messaging: Supporting a consolidated view on
positions
Accord
matching
Exchange
or MTF
Clearing
Member
CCP1
Exchange
or MTF
CCP2
Clearing
Members
New ISO 20022 messages to cover
• Trade management
• Position & settlement management
• Margin management
• Default funds contribution for equities and fixed income
• Live: May 2011
Liquidity risk management – October 2010
CSDs
Key (SWIFT flows)
CCP to settlement (ISO15022)
CCP to Clearing Member (ISO20022)
Accord to CCP (ISO15022)
Interoperability flows (under review)
SWIFT Copy Service - FINInform
Standardised, Scalable Data – Global liquidity View
• Monitor payments & intraday reports on liquidity
positions sent to branches
MT103, 202
MT 900,910, 942,535
Any bank
Branch
FIN Inform user
• Guaranteed real-time copy
delivery, confidentiality of
sensitive information through
partial copy
• Simple
No action or development by
sender or receiver
• Flexible
Headquarter
Copy destination
Liquidity risk management – October 2010
Full or partial copy, filtering on
message content
SWIFT Integration consulting services
Assessment
• Assessing cash and liquidity
business / operational processes
– Intra-day position management
– Predictive position management
– Payment flow control
• Assessing underlying related
processes
• Guidance for potential process
improvements in line with new
liquidity risk regulation
Liquidity risk management – October 2010
Implementation
• Business layer – Formal modeling
of cash & liquidity processes and
data flows (by type of instrument)
• Middle layer - Technical model
representation
• Messaging layer – Data mapping
with SWIFT messages and
integration with your applications
• Connectivity layer - Configuration,
deployment and testing support
Watch Value Analyser
Online insights into amount & currency
• Ordering possible now!
• First data publication (December 2010)
Allowing you to:
• Monitor the total value per currency of your cash flows
• Identify your SWIFT market share from a value or currency
perspective
• Measure your counterparty exposure
• Perform customer risk analysis
Liquidity risk management – October 2010
Historical view of my business
Watch Value Analyser – Business insights
Yearly evolution of Payments business in Europe per currency
Monitor Your Business
“What is the regional
breakdown of the
Payments value that
you exchanged over the
past years?
…
Which currencies?”
• Perform a similar analysis for each business line, country, entity…
• More to come: daily peaks, average daily peak with timing
Liquidity risk management - 9 September 2010
Monitoring of the evolution
Watch Value Analyser – Market insights
Market share evolution of EUR Payments business from France
Track Evolution
“How is our market
share in EUR
payments from
France evolving?
…
Is the market
evolving in a similar
way?”
• Perform a similar analysis for other business flows, currencies…
• Preliminary alerting options
Liquidity risk management - 9 September 2010
Counterparty exposure analysis
Watch Value Analyser – Customer risk analysis
Counterparty reciprocity analysis per currency
Customer Risk
Analysis
“Who are your main
counterparties?
…
What is the direction of
exposure towards
them?
Liquidity risk management - 9 September 2010
Monitor counterparty exposure over time
Watch Value Analyser – Customer Risk Analysis
Total EUR amount
Monthly evolution of exposure with counterparties
Trend Analysis
“With which
entities do you
have the biggest
exposure?
…
Do you see any
trends?”
2010/Oct
2010/Nov
2010/Dec
2011/Jan 2011/Feb
2011/Mar
2011/Apr
2011/May 2011/Jun 2011/Jul
2011/Aug 2011/Sep
2011/Oct
• More to come: analysis of daily in/outflow per counterparty
Liquidity risk management - 9 September 2010
Q&A
?
Liquidity risk management – October 2010
More info?
SWIFT experts
• On overall liquidity (risk) initiative
Catherine Banneux
• Intra-day reports & copy service
Catherine Banneux
• RTGS liquidity management
Stéphane Ernst
• Collateral Management
Banu Apers
• CCP to clearing member messaging
Joe Halberstadt
• Watch initiative
Bart Claeys
• Visit our stand
• Main conference session - Liquidity risk management: The challenges at hand4pm, room 2
• Other related SWIFT@sibos sessions
– “The power of business analytics” – Tue 26 Oct, 17 pm
– “SWIFT for Payment Market Infrastructures: Efficient support to successfullyrenew
payment clearing and settlement systems – Wed 27 Oct, 14 pm
– “Transforming Collateral Management: How bi-lateral and tri-party messages can
mitigate counterparty and credit risk” – Thur 28 Oct, 11 am
PowerPoint Toolkit – 23 October 2008 – Confidentiality: restricted
Thank you
Liquidity risk management – October 2010