SWIFT solutions for Liquidity risk management Catherine Banneux, Senior Market Manager, SWIFT Bart Claeys, Product Manager, SWIFT.

SWIFT solutions for Liquidity risk management

Catherine Banneux, Senior Market Manager, SWIFTBart 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

Liquidity risk management - 9 September 2010

Riskmanagement

Management capability

Position management,both current and predictive

• 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

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

• Stress tests: identify unexpected movements, set-up early warning indicators, calculate forward exposure

Bottom up risk strategy implementation

SWIFT 2010 Survey

Source: SWIFT survey, June 2010. 255 treasury, liquidity and liquidity risk managers at financial institutions. Full survey report available from swift.com


80% of Financial Institutions are investing in improving liquidity risk management

SWIFT 2010 Survey


Liquidity Risk Management 4 Major operational issues

Need to improve

Intra-day visibility

Global position

Analytics & forecasting

Data integration

60% have less than 50% transactions reported

intra-day

68% have difficulty building timely firm-wide position

87% want more traffic data and business insights

Need for:- Standardisation (80%)- Integration services (57%)

• Overdraft charges• Intra-day credit lines costs• Oversized liquidity buffers• Costly emergency funding• Risk non-compliance

TO REDUCE

SWIFT Services that can support your liquidity risk management

SWIFT solutions

Intra-day visibility

Global position

Analytics & forecasting

Data integration

• Intra-day reports• Early advices• Underlying process

automation

FINInformWatch

Consulting services


The Dynamic Interdependent ECO SystemLiquidity Management


Providers of liquidity information.Some monitoring tools, some without...

Providers of liquidity information.Some monitoring tools, some without...

Users of liquidity information. Need info online« As it Happens » Global Financial Institutions

Brokers Corporates Fund Managers other clients Banks

RTGS

ACHSecurities MI

CSDCCP Retail MI

Interoperability of standards & systems should achieve better liquidity management

SWIFT supports integrated & real-time liquidity management

Liquidity risk management – October 2010

Predictive• Notifications• Monitoring reports

Management

• 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

Liquidity Function• Payment flow control : cancel, modify priority• Modify standing order• Get/return reservation• Liquidity credit transfer• Limit management• Collateral substitution

Major Flows - Examples

Current

Overview of the high value payment market infrastructures using SWIFT


AfricaAngola Algeria BotswanaCentral African States (BEAC) EgyptGhana Kenya LesothoMauritius Morocco NamibiaSenegal Sierra Leone South AfricaSwaziland Tanzania TunisiaUganda Zambia ZimbabweWest African States (BCEAO)

Asia PacificAustraliaFijiHong KongNew ZealandPhilippinesSingaporeSri LankaThailand

Central & Eastern EuropeAlbaniaAzerbaijanBosnia & HerzegovinaBulgariaCroatiaHungaryRomania

North AmericaCanadaUS (TCH)

Central & Latin AmericaBahamasBarbadosChileDominican Rep.GuatemalaTrinidad & Tobago Venezuela

Western EuropeDenmarkEBA ClearingTARGET2NorwaySwedenSwitzerlandUK

Middle EastBahrainIsraelJordanKuwaitOmanUAE (DIFC)

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 • 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


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 (ISO) Business Standards to supportintra-day/real time information

MT Debit /credit confirmation(MT 900/910)

Interim transaction

report (MT 942)

Interim balance report

(MT 941)

MX Debit/credit Notification (camt054)

Account report (camt 052)

Available November 2011

NotificationToReceive (camt.057) NotificationToReceiveStatusReport (camt.059)

NotificationToReceiveCancellationAdvice (camt.058)

• Business practice development (rule book)• New Third party application certification

SWIFT Collateral Management Service: Standardised Data - Improved liquidity visibility


Existing Intra-day Reporting Messages•MT535: Holdings of underlying securities collateral

•MT 942 /camt052: Holdings of underlying cash collateral

Predictive position ISO 20022

New Intra-Day/Real-time Messages•Cross Asset Class Margin Calls

•Margin Disputes

•Collateral Reports

Available•December 2010 (pilot)

•March 2011 (live)

Current position

New ISO 20022 messages to cover•Trade management•Position & settlement management•Margin management•Default funds contribution for equities and fixed income•Live: May 2011

SWIFT’s solution for CCP to clearing member messaging: Supporting a consolidated view on positions


Key (SWIFT flows)Key (SWIFT flows)

ClearingMember

ClearingMembers

Accord matching

CSDs

CCP1 CCP2

CCP to settlement (ISO15022)

CCP to Clearing Member (ISO20022)

Accord to CCP (ISO15022)

Interoperability flows (under review)

Exchangeor MTF

Exchangeor MTF

SWIFT Copy Service - FINInformStandardised, Scalable Data – Global liquidity View


Any bank Branch FIN Inform user

HeadquarterCopy destination

MT 900,910, 942,535

MT103, 202

MT096MT103, 202

MT 900, 910,942,535

• Monitor payments & intra-day reports on liquidity positions sent to branches

• Guaranteed real-time copy delivery, confidentiality of sensitive information through partial copy

• SimpleNo action or development by sender or receiver

• FlexibleFull 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

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

• Ordering possible now!• First data publication (December 2010)


Online insights into amount & currency

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

Historical view of my business


Watch Value Analyser – Business insights

Monitor Your Business

“What is the regional breakdown of the

Payments value that you exchanged over the

past years?…

Which currencies?”

Yearly evolution of Payments business in Europe per currency

• Perform a similar analysis for each business line, country, entity…

• More to come: daily peaks, average daily peak with timing

Monitoring of the evolution


Watch Value Analyser – Market insights

Track Evolution

“How is our market share in EUR

payments from France evolving?

…Is the market

evolving in a similar way?”

Market share evolution of EUR Payments business from France

• Perform a similar analysis for other business flows, currencies…

• Preliminary alerting options

Counterparty exposure analysis


Watch Value Analyser – Customer risk analysis

Customer Risk Analysis

“Who are your main counterparties?

…What is the direction of

exposure towards them?

Counterparty reciprocity analysis per currency

Monitor counterparty exposure over time


Watch Value Analyser – Customer Risk Analysis

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

Trend Analysis

“With which entities do you

have the biggest exposure?

…Do you see any

trends?”

Tot

al E

UR

am

ount

• More to come: analysis of daily in/outflow per counterparty

Monthly evolution of exposure with counterparties

Q&A


?

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 hand- 4pm, 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


SWIFT solutions for Liquidity risk management Catherine Banneux, Senior Market Manager, SWIFT Bart Claeys, Product Manager, SWIFT.

Documents

liquidity risk managers

users of liquidity information

swift slide

intra day position management

swift survey

swift services

intraday timing global

swift suppor