4 Introduction to Oracle Financial Services Liquidity Risk Measurement and Management

Liquidity Risk Management (LRM) has emerged as a critical risk management function for banking institutions, as regulators across jurisdictions have placed a greater emphasis on improving liquidity risk practices within banks. In order to stay ahead of the liquidity curve and meet regulatory pressures, banks must have the ability to assess their liquidity resilience under multiple stress scenarios, and manage their risk in an efficient manner while devising counterbalancing strategies to mitigate potential risk.

Oracle Financial Services Liquidity Risk Measurement and Management (LRMM), comprehensively addresses an organization's liquidity risk requirements, both regulatory and management. It gives the bank an enterprise-wide, robust and comprehensive liquidity risk framework to manage large data volumes, address computational complexity, and provide accurate results. It covers non-regulatory calculations required for managing liquidity risk within the bank itself, including stress testing, counterbalancing, liquidity gap calculation, comprehensive dashboard reporting and base regulatory calculations, such as Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), based on the guidelines issued by the Bank for International Settlements (BIS). This helps financial institutions to:

• Improve internal liquidity risk management through intraday and long term assessment of their liquidity risk
• Drive liquidity ratio regulatory compliance and adhere to tight regulatory deadlines through pre-packaged rules and computations
• Engage in enterprise-wide comprehensive stress testing that feeds into the contingency funding planning process
• Improve risk reporting practices by leveraging an extensive set of reports and dashboards built out of a unified data model

The application addresses an organization's liquidity risk requirements, through a flexible user interface, robust calculations, and advanced reporting. It helps banks to identify and assess liquidity risk under normal and stressed business conditions, and then efficiently manage this risk through tailor-made contingency funding strategies. It leverages the unified data foundation of OFSAA to ensure data reliability, consistency, accuracy, and timeliness. With the pre-configured regulatory scenarios, rules and computations that address the liquidity ratio guidelines as per BIS, this application, together with the other liquidity risk regulatory calculation SKU’s, helps achieve on-time regulatory compliance across multiple jurisdictions. Additionally, it enables banks to have a complete understanding of their liquidity position by providing the capability to define and apply bank specific stress assumptions to quantify the behavior of cash flows under varied crisis situations.

LRMM covers the following key capabilities:

• Robust calculations including liquidity gaps, regulatory ratios such as LCR and NSFR, as per BIS, funding concentrations
• Intraday liquidity management through intraday monitoring metric calculation and continuous monitoring of intraday metrics
• Extensive set of business assumptions that enable stress testing under multiple varied scenarios
• Counterbalancing
• Supports multiple and multi-level time bucket definitions
• Leverages a unified data model and a common cash flow engine
• Extensive set of pre-built dashboard reports with drill through capabilities
• Workflows and versioning of business definitions