Liquidity coverage ratios have to be met by institutions to ensure they can meet net liquidity outflows under stress scenarios. Accurate calculation of these ratios is essential and dependent on proper understanding and use of data and systems requirements. In particular, understanding the impact of contingent liability clauses in agreements is key to an institution being able to accurately model its potential increased collateral obligations and the impact on its liquidity in the event that it suffers a ratings downgrade that triggers such a clause. These include efficient use of:

  • Contract data e.g. rating downgrade provisions,
  • Collateral types permitted under collateral agreements,
  • Systems in order to be able to record and track contract data.

Case Studies

  • We helped a Tier 1 investment bank with a major project to identify and map key rating downgrade clauses in master agreements to enable it to be able to model and better manage its contingent liabilities.