Polaris gears up for Basel III

LRM is a software suite that enables banks and financial institutions to comply with BASEL III recommendations on banking supervision to enhance the banking regulatory framework, addressing both solvency and liquidity issues.

LRM enables banks to improve the bank's ability to monitor internal liquidity - both structural and intraday - along with a stress test to calculate the bank's capital adequacy and a rigorous reporting process to review any implications of liquidity mismatch.

Bikash Mathur, European CEO, Polaris Software, comments: "Basel III guidelines have demanded that banks operate with a higher level of transparency and governance to be able to withstand any type of global economic stress. Regulators are naturally keen to ensure that banks increase their capital bases to protect consumers whilst providing adequate risk protection for themselves. LRM has been developed to specifically address this requirement and provide a framework that offers a far more stringent system to monitor and manage liquidity in real time."

While the Basel III standards are evolving, the key recommendations are: near real-time intraday liquidity risk at enterprise level; structural liquidity risk management for the long term funding; and precision in pricing of asset and liability products.

The Polaris LRM solution helps banks to achieve: intraday liquidity management; minimise intraday liquidity exposure; reduce the cost of borrowing; optimise investment; structural liquidity management; enable asset-liability classification/definition; ratios for short term and long term funds usage; scenario/stress testing and its impact on liquidity and determine the capital coverage; price modeling, assisting in arriving at the right pricing to achieve borrowing and lending targets - core to structural liquidity management.

Within the Polaris LRM solution this is achieved by:

1. Accurate cash flow from all source systems by individual currencies and entities; optimal funding and gaping decision based on interest sensitivity analysis; customer and branch back-to-back transfers of aggregated cash flows

2. User definable classification of asset and liability; ability to define coverage and funding ratios; comprehensive scenario analysis to evaluate the impact of sudden stress events on liquidity position

3. Change in FTP (Funds Transfer Pricing), margin and interest rate to see impact on Net Interest Income to arrive at the right mix of product and customer at appropriate price; back testing to fine tune assumptions.