Liquidity has become one of the key metrics getting tracked by banks globally, especially post the 2008 financial crisis. Consequently, one of the new requirements in Basel III (as compared to Basel II) is that of tracking and reporting on short and long term liquidity of the bank. Liquidity Coverage Ratio (LCR) takes into account the liquidity position of the bank over a 30 day horizon while the Net Stable Funding Ratio (NSFR) looks at the inflows and outflows over a one year timeframe. In addition, most regulators also have region specific liquidity monitoring returns.
In the US, the regulator has recently introduced the FR2052a return which requires that banks report inflows and outflows at transaction level adhering to a well laid out master data management framework. On the other hand, In India, RBI has a return on Structural Liquidity which monitors inflows and outflows at an aggregate level i.e. across asset/liability categories across different maturity buckets as well as, asks for the list of the top depositors thus again drilling down to the potential source of liquidity risk.
However, the key differences on comparing these local liquidity standards with the Basel committee norms on Liquidity risk are
- Stress testing on HQLA where the bank needs to report on the HQLA level under stressed conditions
- Specific classification on the basis of its riskiness in HQLA Level 1, HQLA Level 2A and 2B categories
- Adherence to category wise threshold levels prescribed by the committee to ensure quality of the liquid asset stock of the bank
- View on short and medium term liquidity
Hence, while local and global liquidity reports may be complementary both need to be separately tracked and managed by banks given the change cycles, data requirements, report formats and frequencies vary.