Risk Management & Analytics: New e-book series discusses evolution of liquidity risk management strategy

New e-book series discusses evolution of liquidity risk management strategy

As we approach 2019, banks and credit unions are focusing on liquidity, which has recently become a key focus of regulators who have highlighted a reduction in liquid assets at banking institutions. Since the 2008 financial crisis, banks and regulators have taken significant steps to monitor liquidity risk, but new liquidity concerns have emerged, and financial institutions need to ask themselves whether they can defend their liquidity risk management strategy to regulators.

Are CFOs, risk managers and Asset Liability Committee (ALCO) boards asking the right questions? Have they changed their liquidity risk management strategy to address some of the key challenges that emerged from the financial crisis? Do they have the proper plans in place to effectively measure, monitor and manage liquidity risk? MountainView Financial Solutions, a Situs company, is releasing a series of short Liquidity Risk Management e-books designed to help financial institutions spot-check their overall strategy from the fundamentals to specific monitoring and measurement mechanisms. The first e-book, 5 Key Steps to Transform Your Liquidity Risk Management Approach, is available for download by clicking here.

Stress testing regulatory burdens made “proportional” at World Council’s urging

The Basel Committee on Banking Supervision (Basel Committee) recently issued a revised Stress Testing Principles standard that will significantly reduce the regulatory burdens of stress tests on credit unions and other community-based financial cooperatives. World Council of Credit Unions (World Council) earlier this year urged the “proportional” approach to stress testing adopted by the Basel Committee. Stress tests of credit unions and other community-based cooperative depository institutions are based on this Basel Committee standard and will now be implemented by regulators on a more proportionate basis, based on the size, complexity, resources and risk profile of the institution.

“World Council members have often reported ‘gold-plating’ and excessive supervision involving stress testing and the Basel Committee’s updated stress testing principles should help end those excessive compliance burdens on credit unions,” said Michael Edwards, World Council’s Senior Vice President and General Counsel.

The Basel Committee’s new standard also found that national-level stress testing frameworks have evolved well beyond what the Committee envisaged when it issued its original stress testing standard after the global financial crisis.  World Council applauds the Committee’s new approach that will help right-size the compliance burdens of stress tests for credit unions and other community-based financial cooperatives.

Read more: CUInsight

FASB adds SOFR to list of approved rates for hedge accounting

The Financial Accounting Standards Board (FASB) last week expanded the list of US benchmark interest rates permitted for the application of hedge accounting.

The FASB added the overnight index swap rate based on the Secured Overnight Financing Rate (SOFR) to its list of eligible benchmark interest rates.

The move comes as global financial regulators are pushing for the transition away from the scandal-plagued London interbank offered rate, or Libor. The rate fell out of favor after traders at several banks were found to have manipulated the Libor by submitting false data. Regulators plan to phase out the Libor from the global financial system by the end of 2021.

The SOFR, a Treasury repurchase agreement financing rate, was identified as the preferred alternative to the Libor by a committee convened by the Federal Reserve Board and the Federal Reserve Bank of New York. The Federal Reserve began publishing the rate on April 3, while CME Group, a major derivatives exchange and clearinghouse, launched SOFR futures in May.

Read more: Wall Street Journal

Amid glut of cyber rules, banks launch global tool to assess risks

More than 150 banks and many of the world’s largest vendors, working through a collaboration with trade groups, have launched a “best practices” assessment tool for applying cybersecurity regulations globally.

The assessment is voluntary, but institutions such as HSBC and Citigroup are hoping that it can better streamline compliance with international cyber rules.

“We’re in roughly 67 countries and from a regulatory perspective to date for information cybersecurity we’ve identified about 330 regulations around the globe with close to 80 of those just being in the U.S.,” said Ann Lavis, senior vice president, US head of information security risk at HSBC. “The only way we can beat all the threats that are coming in today, and there are going to be so many more coming, is if we start talking more with each other. But we’ve got to have that common framework.”

Bankers argue that each year they are bogged down by hundreds of questions from examiners at various regulatory agencies on cybersecurity risk management that could be streamlined.

Read more: American Banker

Gartner says data and analytics risks are audit executives’ prime concerns for 2019

Risks surrounding data and analytics are the primary concerns of chief audit executives (CAEs) for 2019, according to Gartner, Inc. Based on a survey of 144 CAE clients, Gartner has identified the major risks that boards, audit committees and executives need to prepare for in the coming year.

Pursuit of digital business models to drive growth has increased the amount of data collected and processed by businesses at a time when public and regulatory scrutiny is very high. This has led to heightened risks around data governance, which CAEs plan to watch closely.

“Companies face major challenges in applying proper data governance, maximizing the value they get from data, and complying with the fragmented data regulation landscape,” said Malcolm Murray, vice president of audit research at Gartner. “Recent high-profile data breaches and increased public attention have raised the stakes for organizational accountability, and it’s only going to get tougher in 2019.”

Read more: Business Wire

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