Liquidity Coverage Ratio for US Basel III  G-SIBs and the Net Stable Funding Requirements for the EU G-SIBs should be accurately calculated and evidenced

….and is a fundamental component of the Basel III international regulatory framework and is the latest in a series of continually orchestrated agreements among central banks and bank supervisory authorities to promote standardised bank prudential regulation (e.g. capital and liquidity requirements, transparency, risk management) that improves resiliency during events of financial distress in the banking system.

LCR is being phased in across firms and with regulatory expectation 100% in 2019, we have seen some Tier 1 peer firms attempting to achieve a minimum LCR from 2018 of 100%  (i.e. the stock of High Quality Liquid Assets (HQLA)) in advance of the 2019 deadline that at least totals the total net cash outflows for a period of 30 calendar days upon a three-notch downgrade.

The notion of a hypothetical three notch downgrade did not exist previously and as a result most firms still do not have packaged vendor products that provide adequately for this impact and certainly do not (out-of-the-box) cater for their monitoring and reporting. Critically, many of the agreements in place with counterparties were negotiated at a time when these regulatory consequences of contractual provisions that created contingent liabilities did not exist.

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