NBFIs in the spotlight.
Why you need to protect your liquidity
Financial stress doesn’t wait for business hours. If you want to manage liquidity, mitigate risk and make your money work harder, you need easy-to-access, real-time data at your fingertips.
Managing your NBFI liquidity risk is
smart business
When you think about liquidity, you may think about banks. Until you start thinking about the Gilt Crisis. The 2022 Gilt Crisis in the UK and earlier market turbulence at the beginning of the pandemic underscored the significant impact Non-Bank Financial Institutions (NBFIs) can have on financial markets.
NBFIs have grown in relative importance over the last 15 years – becoming pivotal players, contributing to market liquidity and risk diversification. While their role has evolved, there seems to be a lag in adapting to scenarios, stress perspectives, and operational capabilities. Given the increasing regulatory focus and market changes such as T+1 and Basel III, there is a pressing need to enhance capabilities to meet compliance expectations, mitigate risk and make your money work harder.
What’s at stake?
Firms must be able to manage the liquidity consequences of their risk exposure. We have watched as poorly managed liquidity has caused systemic vulnerabilities in the non-bank system:
- The Long Term Capital Management crisis
- The 2007 run on the repo market
- The failure of Archegos in 2021
Then, in 2022, the UK pensions crisis came close to being a Lehman’s moment. No one can afford more of the same.
“All too often excessive risk-taking alongside improper liquidity risk management has threatened conditions in the real economy.”
Sarah Breeden, Bank of England, November 2022
7 questions to check your liquidity risk
This checklist will help you to identify potential gaps in your liquidity protection.
1. Liquidity Exposure Have we conducted a thorough assessment of our liquidity exposure, considering both current and potential future risks associated with our investment portfolio?
2. Operational Resilience Are our operational processes resilient enough to handle the increased complexity and velocity of trading activities, including adherence to market rigour, shorter settlement cycles, and enhanced derivatives reporting?
3. Adaptation to Portfolio Complexity How well have we adapted our strategies and operational capabilities to the increasing complexity of our investment portfolio, which includes illiquid assets, foreign exposures, and a heavier reliance on derivatives?
4. Regulatory Confidence Compliance is the consequence of good liquidity management, not a destination. Are we staying abreast of the evolving regulatory landscape, and is our organisation fully compliant with financial market regulations applicable to NBFIs, particularly in terms of treasury and trading operations, operational resilience, and liquidity risk?
5. Outsourcing Impact If we outsource aspects of our asset management or operations, have we assessed the impact on our ability to maintain business continuity, governance, operational resilience, and effective risk management?
6. Real-time Data Utilisation How effectively are we utilising real-time data to monitor and manage liquidity? Is our organisation equipped with the necessary tools to make informed decisions promptly?
7. Reputation Management Trust is built over time, and these days it can be lost in a few clicks. Do we have robust processes in place for confirmation, settlements, margin valuation, and payments to ensure the preservation of trust and confidence among policyholders, market counterparties, and regulators?
Imagine the power of liquidity working for you
Many institutions have already woken up to the fact that if you want to manage liquidity, mitigate risk and make your money work harder, you must have real-time data at your fingertips. Here’s two compelling reasons why real-time liquidity management is indispensable for your organisation:
1. 60% of non-bank financial institutions consider liquidity to be a significant risk factor for their organisation. Real-time insights can help address these concerns effectively.
2. The Bank for International Settlements (BIS) found that organisations with strong liquidity management processes outperformed their peers during periods of financial stress.
What does good look like?
Rather than waiting for the end of your strategic transformation, a good first step would be implementing a product that has been specifically designed to give you real-time insights into your liquidity (cash, securities & other) and key trade processes in a matter of weeks not years, and for a fraction of the cost of doing it yourself.
You can make incredibly accurate forecasts of your real-time liquidity usage using the right tech. Imagine the power that knowledge gives you.
Real-time liquidity management is a gateway to transforming your operations and untapping opportunities for growth. In short, you get a goldmine of actionable data that allows you to be a change-maker in your organisation.
Acknowledged as the best-in-class solution for regulatory confidence, the outcomes for Planixs clients speak volumes. The Realiti platform offers millions in savings on intraday liquidity buffer costs, ensuring compliance with the BCBS248 regulatory agenda, and fostering efficient and effective funding operations.
Built by experts with decades-deep experience in the banking sector, Realiti® is the only liquidity intelligence platform to deliver real-time 360° control and insights across your entire liquidity landscape, in one place.
The platform has enabled many financial institutions to transform cross-firm data into a single source of truth and put pioneering liquidity insights into the hands of stakeholders and decision makers across the organisation.
You are warmly welcome to ask us any questions. Book a call to get expert advice from Planixs, we’d love to talk to you.
Get expert advice on building liquidity confidence
You are warmly welcome to ask us any questions. Book a call to get expert advice from Planixs, we’d love to talk to you.
