Exploring the future predictions of liquidity risk management as a function and how the industry might evolve over the next five years

Exploring the future predictions of liquidity risk management as a function and how the industry might evolve over the next five years

By Don Mumma, Managing Director – Risk, AxiomSL.

Don, can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I have been with AxiomSL for over 20 years and currently serve as Managing Director, helping the firm develop, implement and support its risk management software. Prior to joining AxiomSL, I spent 20 years working at banks, including Credit Suisse and TD Bank USA, primarily in the credit and trading front office businesses.

One of our primary areas of focus at AxiomSL is helping clients improve their capital and liquidity risk analytics and reporting. Our solution for the Complex Institution Liquidity Monitoring Report (FR-2052a) enables firms to ingest intense volumes of data from disparate sources and systems across the back office and immediately generates the required reports to comply with this regulation.

What are some of the key issues around governance liquidity that professionals may face?

Compared to other types of risk, liquidity risk is not as widely understood, which makes adopting standards and best practices all the more challenging. Consequently, there are quite a few varieties of liquidity risk management organization structures and liquidity valuation techniques.

Across the board, however, one of the key liquidity challenges firms must address is providing reports on their liquidity positions in accordance with FR-2052a within a very tight window. Depending on the size, institutions must provide daily or monthly reports. In either case, firms must gather data from multiple sources and businesses, cycle it through internal end-of-day batch-processing routines, and organize it in the Fed’s required format. The ever-increasing data volumes firms grapple with put intense pressure on an organization’s back-office capabilities.

You will be speaking on a panel discussion regarding the future predictions of liquidity risk management over the next five years, what do you think the key topics to be covered will be?

First, firms must be aware of and prepare for additional dimensions of liquidity risk that will emerge within the next five years. They must also anticipate the confluence of liquidity risk with credit, market and operational risk. A third issue firms should know about is the development of innovative products that address liquidity risk, and how to assess technological investments that might help their organizations comply with FR-2052a and other regulations.

In your opinion, do you have any worries about the future development of the regulatory environment?

One of my biggest concerns is the overregulation of new disruptive financial services that are competitive threats to banks, which would ultimately harm not only these new services, but also the banks themselves. I’m also concerned that undue political interference could weaken prudential standards. Finally, there is always a worry that global prudential standards begin to diverge rather than converge. This would make it even more difficult for firms to comply with regulations concerning liquidity, as they would have to meet drastically different requirements and provide different information in different jurisdictions.

What can the attendees expect to learn from your session “The shape of liquidity: what is coming in your liquidity journey”?

I hope that attendees will walk away from this session with greater clarity on how to address their liquidity reporting challenges, as well as some actionable takeaways. I think attendees will leave with a greater understanding of how technology can enhance their efforts to comply with FR-2052a and other regulations, as well as other technological advancements they should anticipate in the future.

How do you see the liquidity risk landscape evolving over the next 6-12 months?

I expect the net stable funding ratio (NSFR), part of Basel III, to be finalized and for Intraday Liquidity standards to be introduced for debate. I would also not be surprised for the market to experience a surprise liquidity event, especially if the U.S. economy enters another recession.


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