In addition to the three tests above the firm is required to conduct a reverse stress test a stress – test to the point at which the bank would fail. Under BIPRU the were required to hold a Liquidity Asset Buffer in the new regulations firms’ – this is known as holding High Quality Liquid Assets (HQLA) and is likely to become known as the HQLA buffer. As part of the Enterprise Wide Risk Management Framework, the firm firm’s must have a Liquidity Risk Appetite (and a Funding Risk Appetite) that has been agreed by the Board. The Liquidity Risk Appetite should be defined in terms of survival days survival days – using the HQLA (30 Days), and survival days using the HQLA and the Bank of England Discount Window Facility (DWF): Cash held in the BoE Reserve Account; firm’s Pre-positioned assets at the and Bank’s DWF; Repo facilities and an understanding of the in value) applied. – ‘haircuts’ (reduction Normally the CFO is responsible for liquidity management, although the work will usually be carried out by the treasury function. The Treasury functions in RFBs should be for bank’s ‘not treasury functions and solely charged with managing the banks funding hedging and profit’ liquidity. Two key things that the Treasury function need to do: Liquidity forecasting the equivalent of cash forecasting in a normal corporate, i.e. – understand the daily weekly, and monthly inflows and outflows of cash;
In addition to the three tests above the firm is required to conduct a reverse stress test – a stress test to the point at which the bank would fail. Under BIPRU the firms’ were required to hold a Liquidity Asset Buffer – in the new regulations this is known as holding High Quality Liquid Assets (HQLA) and is likely to become known as the HQLA buffer. As part of the firm’s Enterprise Wide Risk Management Framework, the firm must have a Liquidity Risk Appetite (and a Funding Risk Appetite) that has been agreed by the Board. The Liquidity Risk Appetite should be defined in terms of survival days – survival days using the HQLA (30 Days), and survival days using the HQLA and the Bank of England Discount Window Facility (DWF): Cash held in the firm’s BoE Reserve Account; Pre-positioned assets at the Bank’s DWF; and Repo facilities – and an understanding of the ‘haircuts’ (reduction in value) applied. Normally the CFO is responsible for liquidity management, although the work will usually be carried out by the bank’s treasury function. The Treasury functions in RFBs should be ‘not for profit’ treasury functions and solely charged with managing the banks funding hedging and liquidity. Two key things that the Treasury function need to do: Liquidity forecasting – the equivalent of cash forecasting in a normal corporate, i.e. understand the daily weekly, and monthly inflows and outflows of cash;
Peter%20McCormack%20ICGFREL%20Dissertation%201443852.docx