The financial markets are still suffering from the 2008-2011 crisis. Over the last few years institutions have been painfully reminded of the fundamental link between risk and profitability. Regulatory pressure and scarcity of capital are highlighting the need for financial institutions (FIs) to take a more holistic view of the risks within their balance sheets. This demands a new approach to liquidity risk management and financial management, which can be summarized into a number of key trends:
Solvency II, Basel 3, Dodd-Frank, EBA and other financial regulations are attempting to set a more level playing field.
Reporting standards are becoming more uniform, and are focusing on:
- Market-based views of liquidity risk.
- Valuation risks.
- Counterparty and credit risk-driven aspects of liquidity risk.
- Funding risk.
- Cross-border financing.
Innovation in liquidity risk management (LRM) is being driven in the trading and the banking book.
Chartis considers that ALM and Treasury-based LRM systems have remained relatively static in the time since its Liquidity Risk Management Systems 2011 report. Regulation and technological innovation are
The key geographical area of focus for LRM is in Europe. LRM has traditionally been more mature within the European sector, driven by more comprehensive and detailed regulation, and it is from Europe that evolution in LRM is being fuelled. Leading vendors will be able to provide cutting-edge analytics and data management sufficient to meet the expectations of FIs within this marketplace, and vendors attempting to become global players may struggle to “break in” to Europe.
Smaller FIs are investing in LRM. Whereas the marketplace for LRM solutions has often focused on the largest FIs, smaller institutions such as Tier 3s and Tier 4s are increasingly investing in LRM platforms, and represent a large potential marketplace. Key differentiators for vendors wishing to break into this marketplace are low total cost of ownership, and out-of-the-box implementation capabilities, including integrated reporting.
Data management systems are still attempting to catch up with firms’ expectations. Data granularity, in particular, is a pressing concern. FIs are attempting to make trade-offs between managing high volumes of granular data, or aggregating their data and potentially losing vital information.
Real-time monitoring and analytics is being viewed as a business advantage as well as facilitating compliance, enabling a view of cash flows and capital across the total enterprise. FIs are seeking to effectively manage their positions by creating automated intra-day cash flow views to capture long and short-term cash positions.
Stress and scenario testing capabilities are increasingly essential. The ability to generate bespoke scenarios is considered a key capability with respect to LRM, as many firms remain unable to analyze or explain severe or prolonged market scenarios.
This is an update to Chartis’s Liquidity Risk Management Systems 2011 report. The report covers both the demand and supply-side of the LRM technology market and includes new information on industry trends and business requirements. It covers the main market and regulatory requirements and the vendor landscape.
This report uses Chartis’s RiskTech Quadrant® to explain the structure of the market. The RiskTech Quadrant® uses a comprehensive methodology of in-depth independent research and a clear scoring system to explain which technology solutions meet an organization’s needs. The RiskTech Quadrant® does not simply describe one technology solution as the best LRM solution; it has a sophisticated ranking methodology to explain which solutions would be best for buyers, depending on their implementation strategies.
The report covers key vendors in the LRM space, including AxiomSL, Calypso, Fernbach, Fiserv, IBM, Misys, Moody’s Analytics, OpenLink, Oracle, Polaris FS, Prometeia, QRM, SAP, SAS, SunGard and Wolters Kluwer.