Basel III has implications beyond what most people expect. This is not just a liquidity management issue that some Treasury accountant needs to worry about. It goes way beyond that and a bank can only deliver on Basel III by making fundamental changes in
the way it delivers its business.
Basel III focuses on two main tenets to manage risk: Capital and Liquidity. Capital is separated into the categories of capital, containing leverage, risk coverage, risk management and supervision and market discipline. Liquidity includes global liquidity
standard and supervisory monitoring. Each of these categories defines an approach to provide greater control and a reduction in risk based on the premise that better monitoring and measurement offers greater risk protection.
But guess what, Basel III is another of those regulations that’s only going to grow further. Basel III can offer great opportunity for change which can ultimately improve the customer proposition. Your customers, whether FIs or corporates, may depend on
you to provide a view of their liquidity profile that they do not have the capability to produce themselves, which is an opportunity to strengthen your relationship.
Basel III is one of those initiatives that cuts across the institution from front-to-back, left-to-right and forces the examination of assets, systems and procedures. As a result the process of assessing readiness for Basel III has also magnified underlying
problems in the infrastructure of the financial institution.
The first big challenge that a bank has faced is to gather all the details, about all the processes and settlement obligations. Hubs have been identified as a way to collect data from a single source, but in reality most hubs to-date have been little more
than message movers, and have not had the visibility of the contents of the payments required for the liquidity reporting. The payments continue to be processed in silos, and as such reporting has been about bringing the silo’ed data into a single report.
It’s time to push the hub on though. A hub needs visibility of the payments so that it doesn’t just provide ‘big data’, but ‘big payments data’. A hub focused on the actual content and processing needs of a payment offers true benefits.
Reporting doesn’t just have to tell us what payments are being processed, but what payments are expected based on historical trends, what the liquidity requirement is likely to be and what liquidity is required at any given moment in time. This proactive
management of the reserve and liquidity requirements enables products to be offered to customers that are suited to their varied daily needs.
Reporting and proactive management are best achieved in an environment that is connected for these purposes. This does not imply that the systems all need to be tightly integrated, just that the information flows support the ability to produce such centralised
access to information.
Big data is fine, but to offer the products you need to and to support the regulatory framework, then it is critical to first know what your payments are doing. The ability to see clearly might just get easier because of it.
How has Basel III affected you? Please do send me your thoughts and experience so far.