Stratos Nikolakakis’ Post

Interest rate risk in the banking book (IRRBB) is by nature a complex risk to assess. It is part of an ‘enhanced’ Pillar 2 framework, generally relying on modeling approaches that can be quite heterogeneous depending on jurisdictions' market structures.

Large U.S. bank holding companies are subject to a Liquidity Coverage Ratio rule that is intended to enhance the short-term resilience of the banking system through better measurement and management of liquidity risk. The authors review the performance of components of the LCR since 2017, with particular emphasis on the effects of the market turbulence in early 2020, referred to as the COVID-19 shock. In addition to examining performance through the COVID-19 shock, this brief provides a retrospective review of six years of LCR disclosures to increase public awareness and understanding of these reports. The authors’ analysis uses reports from Q2 2017, when public disclosures began, through Q1 2023. 

With weakening loan growth, how are banks coursing through the new challenges in 2024?   Hear Jorge Martin, MD, Global Banking Operations Americas, Natixis, discuss navigating the current scenario while balancing risk management and meeting diverse customer demands.   Interested to know more? Watch the full webinar here: https://lnkd.in/gh565kJZ   #Webinar #LoanGrowth #Lending

Facing a stringent bank supervisory model, businesses are leaving the regulated banking area and are pushed into the non-regulated “shadow banking sector”, thus making risk less manageable. Here, Andreas Dombret explores strategic considerations for risk management and forward-looking approaches in the new monetary order. Explore the low-for-long interest rate environment in our interview series with senior industry leaders and Oliver Wyman experts, and download our report Navigating The New Monetary Order > https://owy.mn/439sYTt #NewMonetaryOrder #LowForLong #Banks

In recent years significant progress has been made in supervision & resolution of financial institutions, not least in Europe. Strict regulation often leads to risks migrating to neighboring, less or even unregulated sectors often labeled "shadow banking". When such risks arise they often hit the traditional financial sector. Today, there is still insufficient oversight of financial intermediaries falling outside the realm of traditional regulation, something which is worrying. The “outsourced” risks have only been outsourced, but they have not at all disappeared. This is why risk management remains so important, as does a fair level playing field. As far as interest rates are concerned we are not yet at a very high level in the long term, especially if one looks far back in time. But given that inflation has come down considerably lower interest rates will materialize in the not too distant future. Please find below a video recorded at the Oliver Wyman Taverna conference and the link to the report that Oliver Wyman offers for download. #OliverWyman #NewMonetaryOrder #LowForLong #TavernaConference #Banks #InsuranceCompanies #Banking #Regulation #Supervision #CentralBanks

Interesting reading on effectiveness of the Basel liquidity metrics during severe banking turmoil (March-May 2023). My two cents: - yes, the current LCR outflow rates are far from perfection and yes, 30 calendar days may be very generous, especially considering the speed at which clients can pull their money nowadays.. - yes, accounting treatment of HQLA actually matters. Banks can repo out HTC (or amortised cost) securities for cash but at what costs.. - yes, generally banks can access emergency liquidity facilities (ELA) made available by central banks, but that would likely exacerbate liquidity outflows (..what kind of signal would that send to current accounts' holders?).. So, yes the Basel liquidity framework isn't perfect - reason why along with the LCR requirement, there are stress testing requirements, mandating banks to run periodic liquidity stress tests with scenarios tailored to their business model. A perfect liquidity regulatory framework that fits all and prevents all kinds of liquidity runs on banks will never exist.. The current one however - if paired with good risk management practices - should be good enough!

T'was just a matter of time? It has long been the case that banks' own internal stress tests, run in parallel to the LCR, have sought to add further granularity to deposit outflow categorisation and time dimensionality when calibrating liquidity requirements under stressed scenarios. This has continued to evolve in response to the events of March 2023, as well as broader changes in the pattern of customer behaviour (enabled by technology), with a particular focus on: ➡ sharp sudden outflows of deposits ➡ cash buffer requirements to withstand this ➡ differentiation in depositor characteristics, including insurance scheme coverage ➡ prolonged stresses across a longer horizon Refreshing liquidity risk frameworks and re-calibrating assumptions are real hot topics right now, with heightened internal and external scrutiny on these areas. Given what is at stake, changes in international regulation will take time to come to fruition. It will be very interesting to see how this plays out, and the direction of travel and alignment between updated regulation and already established and evolving internal practices. Chris Heys Stewart Cummins Susie Thomas Guillaume Kalaydjian Renato Latorre Hongye Wei https://lnkd.in/eVhA8UKv

Bank treasurers worry that the supposedly minor redesign to Basel’s IRRBB framework could turn into a major headache https://hubs.li/Q02jCLvF0 Non-subscribers can get a snapshot of Risk’s coverage. Registration is free, and allows you to read two articles a month: https://hubs.li/Q02jCL0R0

The recent FSB report, Depositor Behaviour and Interest Rate & Liquidity Risks in the Financial System, sheds light on how depositor dynamics and rapid rate changes are reshaping the stability of financial institutions. The March 2023 banking turmoil revealed the vulnerabilities of banks, insurers, and other financial entities to swift depositor actions, spurred by digital channels and economic pressures. In a world where technology amplifies both risk and opportunity, traditional risk management frameworks need an update. Please see the overview of insights below: Source: https://lnkd.in/da64-5_u #RiskManagement #ALM #LiquidityManagement #InterestRateRisk #LiquidityRisk #FSB #FinancialStability #FutureOfBanking