Liquidity Risk Management
Liquidity Risk Management Data Management and Reporting
Luke Wippler SVP, Capital & Liquidity October 27, 2015
The views/opinions expressed are my own and not those of U.S. Bancorp or its affiliates
U.S. Bancorp 3Q15 Dimensions NYSE Traded
USB
Branches
3,151
Assets
$416B
Founded
1863
ATMs
5,001
Deposits
$295B
Market Value
$72B
Customers
18.5M
Loans
$255B
Market value as of 10/16/15
2
Summary: LCR, Internal Stress Testing, NSFR
Item
Liquidity Coverage Ratio
Internal Liquidity Stress Testing
Net Stable Funding Ratio
Regulation
Prescriptive (Joint Agency)
Principles-based (Enhanced Prudential Standards)
Prescriptive (BCBS)
Stress Time Frame
Short term: 30 days
Short & Long term: 12 months (with emphasis on 30 days)
Long term: 12+ months
Stress Environment
Single "contingent liquidity event”
Minimum of three subjective stress environments – bank-specific, systemic, combination
Measure of stable funding profile
Product Segmentation
Runoff / Draw Factors
1. 2. 3. 4.
Off-Balance Sheet Commitments Non-Maturity Funds Retail Wholesale a) Financial b) Non-Financial
Aligned with Bank’s on and off-balance sheet composition and risk profile
1. 2. 3. 4.
Off-Balance Sheet Commitments Non-Maturity Funds Retail Wholesale a) Financial b) Non-Financial
Defined by regulation
Regulation not specific; must use external data to define
Defined by regulation
Funding Mechanisms
High Quality Liquid Assets
Unencumbered on-balance sheet liquid assets (first 30 days) plus off-balance sheet borrowing facilities (FHLB, FRB) remainder of stress period
Bank’s liabilities plus Total Capital
Effective Period
Monthly LCR 80%: 1/31/15 Monthly LCR 90%: 1/1/16 Daily LCR 90%: 7/1/16 Daily LCR 100%: 1/1/17
Currently effective
TBD
Purpose
Stress test cash flows
Institution-specific stress coupled with macro stress
Hold a minimum amount of stable funding
3
Basel III Liquidity Rules •
There are three components related to liquidity that were introduced as part of the Basel III framework Liquidity Coverage Ratio (LCR): Final Domestic Rule Net Stable Funding Ratio (NSFR): Basel Proposal Monitoring tools for intraday liquidity management. Basel Proposal
•
Additional reporting requirement 2052a Reporting: Domestic Proposal
•
The following timeline reflect the key dates for implementation:
4
Managing Complexity
•
Full integration across the firm is one of the most difficult aspects of managing LCR, NSFR, Liquidity Stress Testing and 2052a reporting Keep it simple, but pay attention to the details
•
Significant amount of system/data development is required to meet regulatory demands (Liquidity demands on business units is about 5 years behind Capital/CCAR)
Integration across: Lines of Business Credit Models Revenue Models Spread Models Loan Balance Projections Capital Planning Validation 5
Risk Management Operational Risk External Reporting Prepayment Models Utilization Models Origination Models Technology
Data Management Sr. Management Finance Treasury Tax Board of Directors Audit
What makes integration so difficult? Historically, liquidity management has been a Treasury exercise; the scope is wider today as new regulation has added a real cost to managing liquidity In the past, components of the process have been handled by separate teams Teams that only had to walk together now need to dance together Ex. LCR “unfriendly” deposits carry a significant cost to the company and front line staff need to understand that cost Legacy processes and inertia – moving away from ingrained processes; disparate systems need to be able to interact
Systems Data Mgmt
Treasury
Finance
Deep understanding, at multiple levels of the organization, of what needs to change
Liq Risk Management “sweet spot”
6
Single Source of the Truth • In order to effectively manage and optimize these new liquidity demands, the company must have an effective and real-time method of aggregating data (both actual and forecast) to accurately report under the current and proposed regulatory environment
Ability to: “Bolt-on” new/additional systems based on regulatory changes or new products Reconcile and validate across various regulatory reports Management certification of data accuracy Report on a real-time basis (automated system reconciliation) Integrate actual and forecast systems Manage FTP costs based on liquidity risk profile
7
Single Source of the Truth • Make Improvements to the Data Collection Process (Single Source of the Truth) Enhance data sources in a central repository to support all regulatory reporting by adding new fields to existing data sources or adding new data sources entirely Create a single regulatory reporting environment at the customer account level to support transparency and reconciliation of reported data Create processes that will improve our long-term ability to support future changes
• Enhance regulatory reporting liquidity data management processes standards Ensure data accuracy at source systems and enhance data lineage documentation Build data quality dashboards and/or enhance internal reporting capabilities
8
Summary • Analyze data needs – both current and future state Maintain flexibility to adapt to regulatory, product and business changes Automate in order to allow your liquidity teams to focus on managing the company's liquidity as opposed to reporting
• Ability to reconcile and report across all regulatory reports Data lineage, data gap logs, data accuracy certification
• Project balance sheet at the same level of granularity as regulatory reports • Transfer liquidity data analysis to drive product pricing and meet client needs Educate sales teams to manage the balance sheet based on the true costs associated with liquidity regulation (LCR, NSFR and Liquidity Stress) Binding constraint will be based on firm specific business model
9
Questions
Contact information
Luke Wippler [email protected]
10
Luke Wippler SVP, Capital & Liquidity October 27, 2015
The views/opinions expressed are my own and not those of U.S. Bancorp or its affiliates
U.S. Bancorp 3Q15 Dimensions NYSE Traded
USB
Branches
3,151
Assets
$416B
Founded
1863
ATMs
5,001
Deposits
$295B
Market Value
$72B
Customers
18.5M
Loans
$255B
Market value as of 10/16/15
2
Summary: LCR, Internal Stress Testing, NSFR
Item
Liquidity Coverage Ratio
Internal Liquidity Stress Testing
Net Stable Funding Ratio
Regulation
Prescriptive (Joint Agency)
Principles-based (Enhanced Prudential Standards)
Prescriptive (BCBS)
Stress Time Frame
Short term: 30 days
Short & Long term: 12 months (with emphasis on 30 days)
Long term: 12+ months
Stress Environment
Single "contingent liquidity event”
Minimum of three subjective stress environments – bank-specific, systemic, combination
Measure of stable funding profile
Product Segmentation
Runoff / Draw Factors
1. 2. 3. 4.
Off-Balance Sheet Commitments Non-Maturity Funds Retail Wholesale a) Financial b) Non-Financial
Aligned with Bank’s on and off-balance sheet composition and risk profile
1. 2. 3. 4.
Off-Balance Sheet Commitments Non-Maturity Funds Retail Wholesale a) Financial b) Non-Financial
Defined by regulation
Regulation not specific; must use external data to define
Defined by regulation
Funding Mechanisms
High Quality Liquid Assets
Unencumbered on-balance sheet liquid assets (first 30 days) plus off-balance sheet borrowing facilities (FHLB, FRB) remainder of stress period
Bank’s liabilities plus Total Capital
Effective Period
Monthly LCR 80%: 1/31/15 Monthly LCR 90%: 1/1/16 Daily LCR 90%: 7/1/16 Daily LCR 100%: 1/1/17
Currently effective
TBD
Purpose
Stress test cash flows
Institution-specific stress coupled with macro stress
Hold a minimum amount of stable funding
3
Basel III Liquidity Rules •
There are three components related to liquidity that were introduced as part of the Basel III framework Liquidity Coverage Ratio (LCR): Final Domestic Rule Net Stable Funding Ratio (NSFR): Basel Proposal Monitoring tools for intraday liquidity management. Basel Proposal
•
Additional reporting requirement 2052a Reporting: Domestic Proposal
•
The following timeline reflect the key dates for implementation:
4
Managing Complexity
•
Full integration across the firm is one of the most difficult aspects of managing LCR, NSFR, Liquidity Stress Testing and 2052a reporting Keep it simple, but pay attention to the details
•
Significant amount of system/data development is required to meet regulatory demands (Liquidity demands on business units is about 5 years behind Capital/CCAR)
Integration across: Lines of Business Credit Models Revenue Models Spread Models Loan Balance Projections Capital Planning Validation 5
Risk Management Operational Risk External Reporting Prepayment Models Utilization Models Origination Models Technology
Data Management Sr. Management Finance Treasury Tax Board of Directors Audit
What makes integration so difficult? Historically, liquidity management has been a Treasury exercise; the scope is wider today as new regulation has added a real cost to managing liquidity In the past, components of the process have been handled by separate teams Teams that only had to walk together now need to dance together Ex. LCR “unfriendly” deposits carry a significant cost to the company and front line staff need to understand that cost Legacy processes and inertia – moving away from ingrained processes; disparate systems need to be able to interact
Systems Data Mgmt
Treasury
Finance
Deep understanding, at multiple levels of the organization, of what needs to change
Liq Risk Management “sweet spot”
6
Single Source of the Truth • In order to effectively manage and optimize these new liquidity demands, the company must have an effective and real-time method of aggregating data (both actual and forecast) to accurately report under the current and proposed regulatory environment
Ability to: “Bolt-on” new/additional systems based on regulatory changes or new products Reconcile and validate across various regulatory reports Management certification of data accuracy Report on a real-time basis (automated system reconciliation) Integrate actual and forecast systems Manage FTP costs based on liquidity risk profile
7
Single Source of the Truth • Make Improvements to the Data Collection Process (Single Source of the Truth) Enhance data sources in a central repository to support all regulatory reporting by adding new fields to existing data sources or adding new data sources entirely Create a single regulatory reporting environment at the customer account level to support transparency and reconciliation of reported data Create processes that will improve our long-term ability to support future changes
• Enhance regulatory reporting liquidity data management processes standards Ensure data accuracy at source systems and enhance data lineage documentation Build data quality dashboards and/or enhance internal reporting capabilities
8
Summary • Analyze data needs – both current and future state Maintain flexibility to adapt to regulatory, product and business changes Automate in order to allow your liquidity teams to focus on managing the company's liquidity as opposed to reporting
• Ability to reconcile and report across all regulatory reports Data lineage, data gap logs, data accuracy certification
• Project balance sheet at the same level of granularity as regulatory reports • Transfer liquidity data analysis to drive product pricing and meet client needs Educate sales teams to manage the balance sheet based on the true costs associated with liquidity regulation (LCR, NSFR and Liquidity Stress) Binding constraint will be based on firm specific business model
9
Questions
Contact information
Luke Wippler [email protected]
10
