Reviewing the post-implementation impact of EPS for FBO’s operating with IHC’s and the liquidity repercussions

Reviewing the post-implementation impact of EPS for FBO’s operating with IHC’s and the liquidity repercussions

Christian, can you please tell the audiences about yourself and your professional background?

Sure. I have been in ALM and Treasury roles for the last 15 years. Currently, I’m Head of Liquidity Risk at MUFG Union Bank and responsible for the internal and regulatory liquidity buffer assumptions for the bank entity as well as the holding company.

At the 6th Annual Risk Americas Convention 2017, you will be delivering a presentation to review the post implementation impact of EPS for FBO’s operating with IHC’s and the liquidity repercussions, why is this an important focused topic?

While the large domestic institutions in the US were expected to adhere to EPS much earlier, the real test for FBOs has begun in July 2016. Regulatory authorities have started to look into how FBOs interpreted the rules and whether they fulfil the spirits of the requirements. The larger FBOs are waiting for the results of the latest horizontal exam by the Federal Reserve Bank and I expect we will learn that the focus need to be much more on liquidity than it was in the past. FBOs have improved their framework in respect to capital and CCAR but certainly do have some catch-up to do on liquidity.

Can you briefly tell us what is the role of IHC and what are the structural changes which liquidity managers need to take in to consideration?

The role of the IHC is critical as it needs to be sufficiently funded to cover the liquidity risk across the US. While in the past, institutions had a large number of entities with its own idiosyncratic liquidity risk, it is now expected that funding and liquidity risk is managed cohesively from the holding company perspective. Moreover, the Federal Reserve Bank has a direct impact on the liquidity risk as it is the primary regulator for the IHC.

How do you foresee the industry evolving, especially as this is such as busy period for liquidity managers?

Again, answering the question from a FBO perspective. The large foreign entities have built up a much stronger liquidity function in 2016 through the implementation of EPS. The Fed has reviewed in particular how liquidity stress assumptions are derived. Moreover, liquidity reporting has kept liquidity manager very busy. The topics for the near term future in my opinion will be a further development of liquidity stress scenarios to reflect scenarios assuming no governmental support in a liquidity crisis. I also see an extended focus on intraday liquidity and collateral management. Lastly, Funds transfer pricing will become a much more centralized focus as one of the key incentives for liquidity risk management is to ensure that front office business managers understand the liquidity risk they are exposing the firm through appropriate cost allocation.