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Liquidity Management Strategies: Moving Towards Integration, Visibility and Agility Martijn Stoker
Head of Global Liquidity and Escrow Services, Asia Pacific Treasury Services J.P. Morgan
1. The Need to Think Differently About Liquidity
a. Regulatory, Policy and Market Drivers
b. Technology Innovation enabling New Liquidity Management Approaches
2. The Implications of Basel III
3. Solutions for a New Age in Liquidity Management
a. Today’s Value-added Solutions for the New Liquidity Environment
b. Tomorrow’s Long-Term Vision and Strategic Investment
4. Conclusions
Agenda
• Disruptive technology
• Liquidity management enablers
2007 2017 2008 2013 2015 2009 2010 2011 2012 2014 2016
First iPhone released
Blockchain concept
Web 2.0 +
Cloud + apps
Big Data from terabyte to exabyte
Financial Crisis
Quantitative Easing
Money Market Fund (MMF) Reform (U.S.)
Negative interest rates (ECB, Japan, etc.)
Think Differently: a New Paradigm for Liquidity Management
Brexit
Regulatory fencing Converging forces: the need to manage liquidity actively
along with the tools to do it
2
Government Fund - SNAV
Prime Fund - VNAV Deleveraging Post-crisis, the US banking
system was flooded with cash.
The end of Quantitative Easing coupled with Money Market Fund reform could now reduce overall market liquidity in the US.
Liquidity remains in the Banking System
Liquidity removed from the Banking System
$
Fund Corp & Bank Paper
$ Gov’t Paper Fund $ The impetus to go to government funds is
expected to reduce liquidity in the system
Changes in Short-Term Liquidity Markets
Changes in Market Supply and Demand for USD Liquidity
Increasing USD Demand: Drivers
‒ 40bps ‒ 10bps 25bps
Recovery and resolution
Regulatory Ring Fencing
Regulatory Impact Time
Liqu
idity
Ava
ilabi
lity
Demand
Supply
$
$
$
4
Basel III: Guidelines on LCR & NSFR
The objective of the LCR is to promote the short-term resilience of the liquidity risk profile of banks. It does this by ensuring that banks have an adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted easily and immediately in private markets into cash to meet their liquidity needs for a 30 calendar day liquidity stress scenario. According to Basel III guidelines, the LCR has two components: (a) Value of the stock of HQLA in stressed conditions; and (b) Total net cash outflows, calculated according to the scenario parameters outlined below.
Liquidity Coverage Ratio (LCR)
Stock of HQLA Total net cash outflows over the next 30 calendar days
≥ 100%
NSFR supplements the LCR and has a time horizon of one year. It has been developed to provide a sustainable maturity structure of assets and liabilities. Basel III guidelines defined it as the amount of available stable funding
relative to the amount of required stable funding.
Net Stable Funding Ratio (NSFR)
Available amount of stable funding Required amount of stable funding
≥ 100%
5
Basel III: LCR & NSFR Implementation Roadmap in Asia Pacific
• The information above are correct as of Mar 2017, and are for reference only. • Effective date refers to the 1st date of implementation, and does not include the subsequent phased implementations. • Please consult with the regulators or your consultants on the implementation roadmap of the respective countries.
Liquidity Coverage Ratio (LCR)
Net Stable Funding Ratio (NSFR)
Country Key Regulators Effective Date Effective Date
Singapore MAS (Monetary Authority of Singapore) √ effective Jan 2016 Consultative paper published
Australia APRA (Australia Prudential Regulation Authority) √ effective Jan 2015 √ effective Jan 2018
Hong Kong HKMA (Hong Kong Monetary Authority) √ effective Jan 2015 Consultative paper published
Japan
BOJ (Bank of Japan) /
Japan FSA (Financial Services Agency) /
SESC (Securities and Exchange Surveillance Commission)
Preliminary rules published Nothing published
China
PBOC (People's Bank of China) /
CBRC (China banking Regulatory Commission) /
SAFE (State Administration of Foreign Exchange)
√ effective Jan 2015 √ effective Jan 2017
India RBI (Reserve Bank of India) √ effective Jan 2015 √ effective Jan 2018
Indonesia BI (Bank Indonesia) /
OJK (Indonesia Financial Services Authority) √ effective Jan 2016 Consultative paper published
Korea Korea FSS (Financial Supervisory Service) √ effective Jan 2015 Nothing published
Malaysia BNM (Bank Negara Malaysia) √ effective Jun 2015 √ effective Jan 2018
6
Basel III: Continuing to Evolve the Focus
Non-Operating Operating
HQLA Loans/ Securities
Unreliable Reliable
Increased Return Limited Return
Liabilities
Assets
7
QUALITY
Effectively employ operating balances for bank funding.
CONSISTENCY
Ensure stable funds. Smooth volatility.
TIMELINESS
Reduce reliance on intraday liquidity. Avoid intraday credit line usage.
Considerations: • Increased focus on
operating products
• Certain products deemphasized
Considerations: • Deposit spike management
• Balancing natural fluctuations of operating business and predicting funding levels
Considerations: • Currency liquidity
• Potential for capital allocations
8:00 AM 9:00 AM 10:00 AM 11:00 AM 12:00 PM 1:00 PM 2:00 PM 3:00 PM 4:00 PM 5:00 PM
Inflow
Outflow
INTRADAY OVERDRAFT
Net
Non-Operating Operating Liabilities
Unreliable Reliable Deposits
Payments
Days
Days
Impact of Stable Funding on Liquidity Management
2019 Basel III global deadline for financial institutions
necessitates thinking differently about liquidity
8
Adapting to a New Environment
Match Funding and Liquidity
Treasury Involved in Clearing Decisions
Yield/Cost Optimization Integration, Visibility and Agility Key
Comprehensive cash control for today and
in stress periods
9
Solutions for a New Age in Liquidity Management
View, control and optimize cash: what you need, how and where you need it
Strategic investment in technology innovation as foundation for new solutions
APIs Blockchain Big Data
TODAY
TOMORROW
INTEGRATION VISIBILITY AGILITY Link payments, FX and
liquidity flows A new level of
information and insight Towards a just-in-time
liquidity ecosystem
¥ £
$
€
OPTIMIZATION Impact the income statement across
geographies
Today’s Value-Added Solutions for the New Liquidity Environment
Real-time Account Services
Just-in-Time Funding
Cross-Currency Sweeping
Core Cash Management Account
¥ £
$
€
Real-Time Account Services
Facilitates balance and transaction reconciliation from end-of-day to any time of day
One standard solution for all the regions with a direct feed to client ERP
Reconcile incoming funds with purchase orders and release the goods/complete the order
Facilitate central treasury / HUB to establish confirmed intraday liquidity positions
Confirms transaction and balance information at any time of the day
JP Morgan Ordering Payment Bank API
Real-time feed
Real-time Connection
ERP /
TMS /
Apps
Customer side processing
Just-in-Time Funding
Automate funding to facilitate payment execution in local currencies
Centrally fund local currency payments precisely when needed
Automate funding, FX and forecasting processes where possible
Eliminate residual, idle balances in non-functional currencies
Minimize management of non-core currencies for payments
Manage currency exposures while increasing payment efficiency
Use liquidity to support and drive payment flows
$ efficiency cost savings risk management liquidity optimization
Cross-Currency Sweeping
Automatically convert and centralize balances efficiently while reducing FX exposures
Fund local currency accounts in non-functional currencies from one central account in your functional currency
Retain onshore local currency accounts for local currency payments and collections without compromising central liquidity
Enable real-time FX conversion and reduce FX exposure
Reduce the number of non-functional currency accounts held centrally
Use automated FX tool to support and drive payment flows
$ efficiency cost savings risk management liquidity optimization
GBP EUR CHF
SGD YEN HKD
USD
GBP SGD
GBP USD
USD SGD
¥ ₹
$
€
14
Core Cash Management Account
Earn enhanced yields on operating balances
Increases in operating payment values drives size of benefit. Accounts can benefit from participation
Provides daily liquidity; operating cash is available for use throughout the business day
Automatically applied benefits offer a simple cash management solution
Enjoy similar operational functioning to standard demand deposit accounts
Benefit from consolidating payments and liquidity
$ efficiency cost savings liquidity optimization
Average Balances
Payment Flows
Tier 1 Tier 2 Tier 3 Tier 4
$0 - $100 Rate A Rate B Rate C Rate D
$100 - $200 Rate B Rate B Rate C Rate D
$200 - $300 Rate B Rate C Rate C Rate D
Tomorrow’s Long-Term Vision and Strategic Investment Quick and easy connections
Alerts
Mobile Apps
Regulatory Reports
Client Analytics
Virtual Account Management
Agile delivery Actionable Business Intelligence
Tax
Billing
Statements Reference Data
‘Live’ Analytics Micro-Services
Sweeps
10100100100100110001 11001001100101100101 100110101€0010010011 10010010011010100100 0011001€010101010011 10001001101010101011 100010010101€1000100 011100101101001010111 100100€1111101001011 011100101101001€10111 1001001111101001011
example: netting opportunity
Enabling global cash management
Master Account
Sub ledger account
Sub ledger account
Sub ledger account
Sub ledger account
More tightly manage payment and liquidity flows
Deepen understanding of
your global liquidity position
Mobilize liquidity to the right place at the
right time
Optimize yields while minimizing
liquidity management costs
It’s time to think differently about liquidity management
Integration Visibility Agility Optimization
¥ £
$ €
Liquidity is coming out of the system The cost and the availability of liquidity is changing
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