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).

FIS' enterprise risk management tools attempt to simulate regulators' test procedures, using quarterly call reports and running those reports through a series of models that measure capital levels, earnings, economic conditions and past performance from across a bank's departments to produce a predictive Camels rating for the entire bank that's viewable by execs as a dashboard, including "heat maps" that locate liquidity and asset risk vulnerabilities.

Camels is an acronym that includes measurements of capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity to market risk. Regulators assign banks a score on a scale from one to five, with one being the best score. An average of greater than three is considered unsatisfactory, opening the bank to action by regulators. FIS attempts to give banks a heads up on how their Camels ratings may change in the future given the performance of departments, transaction records, and external economic changes.

"If the bank has gone from a two to a three, they can figure out why. It may be asset quality or liabilities. They can drill down and see or respond to emerging risks, red flags that may be a root cause for a downgrade," Huda says.

SAS provides a product called Asset and Liability Management as an integrated application within the SAS Risk Management for Banking solution. SAS Risk Management for Banking also provides applications for market risk, credit risk and firm-wide risk. The platform supports the ability for users to calculate cash flows for instruments in a portfolio. Users can then perform analysis to determine any asset/liability gaps. Banks can also value traditional balance sheet instruments such as loans and deposits, factoring prepayment and withdrawal; assess future funds rates, and perform stress testing of liquidity risk, net interest income and economic value.

"One of the problems that technology solves is how to deal with a huge volume of cash flow and quick analysis, thereby giving liquidity risk managers good lead time to look into and resolve real problems and also encourage them to create more scenarios for stress testing of liquidity," says David Rogers, global product marketing manager for risk at SAS. "Technology can enable creation of an efficient 24/7 liquidity monitoring system for Treasury users by bringing in data from different sections of the enterprise across business units or different time zones, for example combining collateral positions, liquidity positions, cash and nostro balances (accounts held for other entities). It helps to manage cash better and invest it in higher-yielding assets."