As a financial institution that primarily serves Malaysia, the AmBank Group (AMMB) seems far removed from most U.S. banks, but that gap is really only geographic. AmBank faces the same types of liquidity risk mandates American institutions do. The bank's new platform for managing liquidity risk could be considered a blueprint of sorts for banks scrambling to adhere to global regulations that require visibility into threats to cash levels.
"Increased regulatory focus on liquidity management since the global financial crisis means that more timely and accurate liquidity metrics are increasingly important to all of our regulators. Basel III will add yet further layers to these regulatory requirements," says Bob Moffat, head of capital and balance sheet management at AmBank.
AmBank, which manages a network of local banks in Malaysia, has licensed a newly developed risk platform from Fiserv (FISV) that accumulates transaction data from different departments at the bank and stores that data in a centralized database. This data is run through analytics tools to produce an assessment of how the transactions — and the financial performance of the business units executing the transactions — help the bank match the capital adequacy requirements of Basel III and other laws, along with providing a look into areas of potential shortfalls and weaknesses. Risk is measured across both retail and treasury products, with contingencies and future commitments incorporated into the modeling used by the analytics tools.
Fiserv contends that banks are still using fragmented or siloed data to perform such measurements, which dilutes the effectiveness of an enterprise-wide liquidity risk assessment. By using one internally managed database, all of the analytics to compute liquidity risk are using numbers and information culled from the same data field, which in theory allows cross department consistency, speed and the use of a broader data set when computing risk and performing stress tests.
"The models allow for robust stress testing…you have an enterprise risk management view that's holistic and allows for customization of your assessments of capital adequacy," says Orlando B. Hanselman, education programs director for Fiserv.
AmBank uses the platform to compile the interest and profit risk profile of the banks and groups within its network to enable hedging strategies, as well as calculate the liquidity risks for its portfolio of assets and liabilities and comply with regulations governing liquidity, capital adequacy and balance sheet structure.
"Although these risks have always been addressed and managed on an enterprise-wide basis, the prior method was time consuming, untimely and subject to manual compilation, processes and errors," Moffat says.
Moffat says the new platform allows more accurate information to be placed into the hands of top executives on a "T+1" basis (the transaction and settlement happen one day apart, a speedier process that's a means to improve execution and make the reporting of the transactions more accurate). "Any risks can be addressed, and importantly any opportunities taken advantage of in the way that we optimize the balance sheet for the long term."
A number of other tech firms have been developing risk platforms to tap into bank concerns over Basel III and other global regulations that require more visibility into how a bank's positions and exposure to partners and subsidiaries affect liquidity and asset liability risk.
"The banks are saying 'We have adequate capital as per regulations, why do we need more?' That's a debate that the banks typically lose, because the examiners have tools that they are using that provide a deeper view of emerging risk," says Sai Huda, a vice president and general manager of enterprise governance, risk and compliance solutions for FIS (FIS).
