1. User Guide
  2. Liquidity Coverage Ratio Calculation
  3. Regulation YY Liquidity Risk Calculation
  4. Process Flow
  5. Calculation of Buffer Requirement
  6. Computation of Buffer Requirement for FBOs

4.6.1.6.2 Computation of Buffer Requirement for FBOs

The application computes internal and external stressed cash flow need for US IHC, US Branches, US Agencies and their respective subsidiaries as follows:
  1. The application obtains the contractual cash flows.
  2. Intercompany, internal and external transactions are identified separately. Intercompany transactions are eliminated during calculations.
  3. The cash flows from internal and external sources are bucketed separately based on the time bucket definition selected as part of the Contractual Run.
  4. The application computes all the other measures supported as part of US LCR calculations such a downgrade impact amount, contractually due collateral, excess collateral and so on. These are calculated and stored for the purpose of applying business assumptions.
  5. The BAU and stress assumptions are applied to bucketed cash flows as part of the BAU or Stress Run. OFS LRM supports a range of business assumptions for the purpose of defining BAU and Stress Runs. The application does not provide pre-configured scenario values for the Regulation YY Liquidity Risk Calculation, but requires users to create their own assumptions, as part of Business Assumption window, with the relevant inflow and outflow rates. For detailed information on each business assumption supported by OFS LRM, refer Chapter 6 Business Assumption; section Business Assumption Definition in the Oracle Financial Services Liquidity Risk Measurement and Management User Guide in the OHC Documentation Library.
  6. The net external stressed cash flow for each day within each horizon is calculated as follows:
    Net external stressed cash flow

    Where, i : 0 to n i.e. each day in the period from open maturity to horizon

    n : Horizon in days

    External Stressed Cash Flow Sources : Cash inflows from external counterparties post business assumptions

    External Stressed Cash Flow Needs : Cash outflows from external counterparties post business assumptions

  7. The application computes the net stressed intra-group cash flow for each day within each horizon as follows:
    Net stressed intra-group cash flow

    Stressed Intra-group Cash Flow Sources : Total cash inflows from internal counterparties post business assumptions for each day

    Stressed Intra-group Cash Flow Needs : Total cash outflows from internal counterparties post business assumptions for each day

  8. The application computes the daily cumulative net stressed intra-group cash flow as follows:
    Daily cumulative net stressed intra-group

  9. If the daily cumulative net stressed intra-group cash flow for any day is a negative value, it is considered as a daily cumulative net stressed intra-group cash flow need.
  10. The absolute value of the largest negative daily cumulative net stressed intra-group cash flow occurring during the horizon is considered the net internal stressed cash flow need.
  11. The application computes the net stressed cash flow need or the liquidity buffer requirement as follows:
    Net stressed cash flow needs

    The net stressed cash flow need calculation for BHCs is illustrated below considering 3 stress horizons 1 day, 5 days and 10 days:

Table 3-14 Net stressed cash flow need calculation for BHCs

Level 0 Time Buckets
Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Day 8 Day 9 Day 10

External cash flow sources (Inflows)
Housing Loan 7 10 7 3 8 4 9 6 10 9
Credit Card 2 2 3 4 3 6 4 3 4 7
Total external cash flow sources 9 12 10 7 11 10 13 9 14 16
Cumulative external cash flow sources (a) 9 21 31 38 49 59 72 81 95 111

External cash flow needs (Outflows)
Deposits 9 7 7 10 14 11 7 9 5 15
Borrowings 8 9 7 6 9 6 6 5 8 8
Total external cash flow needs 17 16 14 16 23 17 13 14 13 23
Cumulative external cash flow needs (b) 17 33 47 63 86 103 116 130 143 166
Net external stressed cash flow need for each horizon [c = {Abs(Min(0,a – b)}] 8 37 55

Internal cash flow sources (Inflows)
Loan to Parent 6 4 9 6 6 3 4 15 5 9
Loan to non-U.S. entities 4 3 8 3 4 5 1 4 13 14
Total internal cash flow sources (d) 10 7 17 9 10 8 5 19 18 23

Intragroup cash flow needs (Outflows)
Borrowings from parent 8 6 2 5 8 4 2 9 7 4
Borrowings from non-U.S. entities 4 7 4 7 7 11 5 8 1 5
Total internal cash flow needs (e) 12 13 6 12 15 15 7 17 8 9
Net intra-group stressed cash flow (d – e) -2 -6 11 -3 -5 -7 -2 2 10 14
Daily cumulative net stressed intra-group cash flow (f) -2 -8 3 0 -5 -12 -14 -12 -2 12
Daily cumulative net stressed intra-group cash flow need (If f < 0 then f, else 0) -2 -8 0 0 -5 -12 -14 -12 -2 0
Greatest daily cumulative net stressed intra-group cash flow need for each horizon (g) -2 -8 -14
Net internal stressed cash flow need for each horizon [g = Abs(g)] 2 8 14
Net stressed cash flow need for each horizon (c + g) 10 45 69

Note:

The application computes the buffer requirement for multiple horizons which are provided by the user as part of the stress horizons parameter in the Run Execution window. At a minimum, buffer requirement is to be computed for a horizon of 30 days in case of US BHCs and US IHCs of FBOs. Buffer requirement is to be computed for a horizon of 14 days, at a minimum, in case of US Branches and Agencies of FBOs.

Buffer requirement is calculated on Solo as well as Consolidated basis.

The calculation of net cash outflows is done at the granularity of level 0 buckets which are part of the time bucket definition selected in the Run Management window. Users must ensure that the level 0 buckets are specified on a daily basis till the highest horizon for which buffer requirement is to be computed within a Run for accuracy of calculations. In this illustration, the level 0 time buckets must be defined on a daily basis till day 10.