16.1.6.2 Forward Cash Flow Allocation

For the Cash Flow Download method, the cash flows are obtained at a less granular level that is at the level specified in the Granularity of Forward Records section. The application allocates these cash flows to the granularity required for computing LCR. The steps involved in allocating cash flows to a more granular level are as follows:

  1. The dimensional combinations based on which Cash Flow Download method is mapped are identified.
  2. The cash flows obtained as of each forward date are bucketed based on the Time Bucket Definition selected as part of the forward date liquidity risk Run.
  3. The dimensional combination to which each forward cash flow is to be allocated is identified. The allocation granularity is the dimensions that are available as part of the Fact Aggregate Cash Flow table.
  4. The application computes the current profile of all spot cash flows, which corresponds to each download dimensional combination, at the granularity available Aggregate Cash Flow table that is the allocation dimension granularity including the level 0 timebucket.
  5. The application applies the current profile percentage calculated as part of step 4 to the corresponding forward cash flows computed at the download dimension level to compute the allocation amount. The granularity of allocation is the same as that available in the Fact Aggregate Cash Flow table.

    The forward cash flow allocation process is illustrated in the following table. Suppose the following forward cash flows are obtained at the Product – Customer Type dimensional combination as of the forward date 25th February 2016:

    Table 16-27 Example - Forward Cash Flow Allocation

    Product Customer Type Forward Cash Flow Date Forward Cash Flows
           
    Loans Retail 26-Feb-15 15
    Loans Retail 27-Feb-15 20
    Loans SME 26-Feb-15 30
    Loans SME 27-Feb-15 15

    The bucketed current cash flows and forward cash flows for this dimensional combination are as follows:

    Table 16-28 Example continued - Forward Cash Flow Allocation

    Product Customer Type Current Cash Flows Forward Cash Flows
    1-1 Day (a) 2-2 Day (b) 1-1 Day (c) 2-2 Day (d)
    Loans Retail 10 25 15 20
    Loans SME 20 15 30 15

    This illustration assumes that the most granular dimensional combination for computation is Product – Customer Type – Currency. The current cash flow available for this granular dimensional combination is provided below. The application computes the current profile and allocates forward cash flows to the granular combinations as follows:

    Table 16-29 Example Continued - Forward Cash Flow Allocation

    Inputs Calculation
    Product Customer Type Currency Current Cash Flow Current Profile Allocated Forward Cash flow
          1-1 Day (e) 2-2 Day (f) 1-1 Day [g = e ÷ a] 2-2 Day [h= f ÷ b] 1-1 Day (c * g) 2-2 Day (d * h)
    Loans Retail USD 5 10 0.50 0.40 7.50 8.00
    Loans Retail GBP 5 15 0.50 0.60 7.50 12.00
    Loans SME USD 9 9 0.45 0.60 13.50 9.00
    Loans SME GBP 11 6 0.55 0.40 16.50 6.00

    Note:

    This allocation process is applicable only when the cash flow calculation method is selected as ‘Cash Flow Download’