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Basel III: Liquidity Requirements & Implications

Source: Mash Finance

Ernst & Young LLP
Peter Marshall

Runtime: 10:11

Key Takeaways:

  1. There are real data and systems challenges for many banks in producing group-wide liquidity stress testing, including the capacity to produce reports on a weekly or daily basis in a stress period.
  2. The rules introduce a number of new assumptions for stress testing, as well as an expectation that liquidity costs or benefits be attributed to business lines and incorporated within performance measurement and new product approval processes. This will require significant enhancements to funds transfer pricing frameworks and associated reporting systems.
  3. Most institutions recognize that liquidity risk data and technology requirements cannot and should not be addressed in isolation, particularly with a clear regulatory mandate for large banks to produce regular robust enterprise stress testing that considers funding and liquidity needs along with capital.
  4. The calculation of the new liquidity rules, the leverage requirements and the higher capital requirements will affect some business models. Bank strategies must be considered in light of the range of rules being introduced.
  5. For more information on Basel III, please visit www.ey.com.

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