Technology Solutions for Liquidity Risk Management and ALM 2010

Liquidity risk and asset-liability management (ALM) are gaining in importance. A long list of new regulations, accounting standards as well as the advent of comprehensive stress-testing regimes has raised the profile of liquidity risk management in particular. Financial institutions now realise their decades-old liquidity risk and ALM policies and technologies are outdated. For the first time, these areas of risk management are demanding similar levels of attention as credit risk.

Chartis has observed a steady increase in demand for liquidity risk and ALM solutions. Each area has distinct requirements and drivers. Regulatory change, including the latest stress-testing regimes, is the main driver behind financial institutions' move to improve liquidity risk and ALM technology. Data management will prove to be perhaps the biggest challenge to delivering the timely and accurate risk intelligence required. Again, in response to regulatory requirements, financial institutions will demand a near-real-time reporting capability as they seek to overhaul their liquidity risk and ALM practices.

Another compelling trend is the requirement for more integration across these traditionally silo-based systems. Like other areas of risk management, financial institutions are seeking to integrate liquidity risk and ALM into an enterprise risk management (ERM) platform. The largest firms will look for solutions they can add into their bespoke integrated platforms. Smaller firms with less complex requirements will opt for pre-packaged solutions. The general idea is the same though; firms of all sizes in all locations want to perform liquidity risk and ALM as part of their ERM strategy.

On the demand side, Chartis forecasts the global market for liquidity risk management and ALM technology to grow to $871 million by 2013, at a compound annual growth rate of 18.3%. In addition to those already mentioned, the key drivers for growth will be:

• Increased demand by the insurance industry

• Cost reduction

• Increased demand by emerging markets

This report is an update to one first published in 2009. It examines both the demand and supply side of the market for liquidity risk management and ALM technology. It covers the main business and systems requirements, trends and best practices. New business and systems requirements are covered in section two and a comprehensive discussion of best practice can be found in appendix A. The report also describes the competitive landscape and forecasts market size and expenditure. 

Vendors covered in this report include (but not limited to): Algorithmics, FinArch, Fiserv, FRSGlobal, Misys, Moody's Analytics, Oracle, SAS, SunGard and Thomson Reuters.