16 Forward Date Liquidity Risk Calculation

Forward date liquidity risk management refers to assessing and viewing the liquidity position of a bank as of one or multiple forward dates under normal and stress conditions. To ensure that liquidity ratios and liquidity gaps remain stable over time and within the boundaries of internal limits, regulatory requirements, and market expectations, the bank management forecasts the liquidity metrics for future dates.

The application supports the calculation of liquidity risk metrics for forwarding dates. It helps financial institutions to perform the following for one or multiple user-specified forward dates:

1. Forecast balance sheet position

   The application has the ability to forecast the position balances for any future date based on several techniques. Some of the balance forecasting techniques are constant balance, contractual run-off, equally changing balance, and so on.

2. Balance sheet adjustments

   The application provides the ability to adjust the forecasted balance sheet to ensure that the sum total of liabilities and equity is equal to the total assets.

3. Forecast cash flows based on forwarding balances

   The application has the ability to forecast the cash flow amounts for any future date based on several techniques. Some of the cash flow forecasting techniques supported by the application are contractual profile, current profile, and default profile, and so on.

4. Use several combinations of balance and cash flow forecasting techniques

   The application provides the ability to use several distinct combinations of techniques for balance and cash flow forecasting. For example, the Constant Balance forecasting technique for balance forecasting may be used with either Contractual Profile or Current profile techniques for cash flow forecasting.

5. Use any techniques for a combination of Product, Legal Entity, and Currency:

   The application provides the ability to select or assign any distinct combination of balance and cash flow forecasting techniques for each combination of Product, Legal Entity, and Currency.

6. Compute components of LCR for future dates

   The application has the ability to compute LCR and its components such as HQLA, NCOF, and so on for any future date based on the forward balances and cash flow amounts generated based on multiple techniques. Currently, forward date LCR is computed only as per US Federal Reserve Liquidity Coverage Ratio guidelines that is when the Run Purpose is selected as U.S Fed Liquidity Ratio Calculation.

7. Compare liquidity risk metrics between as of the date and future dates

   The application provides the ability to analyze and compare the liquidity metrics including forwarding balances, LCR, and so on between the As of Date that is the current date and any future date for which the forward date liquidity risk calculations have been executed.

8. Compare liquidity risk metrics across future dates:

   The application provides the ability to analyze and compare the liquidity metrics including forwarding balances, LCR, and so on between 2 future dates for which the forward date liquidity

   Forward Date Liquidity Risk risk calculations have been executed or across future dates. Users can view the interim calculations as well as variances between the risk metrics across 2 dates.