S&P Global Ratings’ Post

Feds proactively working on a package of liquidity measures to avoid another Silicon Valley Bank scenario. Bank regulation moves slowly. Right now regulators are finishing up their response to the financial crisis of 2008 — and are just beginning their response to the 2023 crisis. We've gone from 'too big to fail' to banks that are small enough to fail but still systemically important, like Silicon Valley Bank.

Planned rule to extend US's unique resolution liquidity requirements beyond largest global banks puts fear into regionals. https://hubs.li/Q02cXCR00 Non-subscribers can get a snapshot of Risk’s coverage. Registration is free and allows you to read two articles a month: https://hubs.li/Q02cXChl0

Following the meaningful discussions on global fragility with UBS at the Future of Finance Forum 2024 last week, BWC is pleased to announce the release of our latest publication, Fragile Global Liquidity: Sources and Policy Implications. This report provides a comprehensive analysis of the vulnerabilities in global liquidity, highlighted by recent bank failures and the COVID-19 pandemic. To combat these vulnerabilities caused by increased globalization and interconnectedness, the report suggests improving market and firm resilience as the first line of defense. To read the full report and explore the other proposed solutions to address these challenges, click below:

📣📣📣 New IMF working paper from the "Technology Fundamentals for Digital Finance" series Introduces a conceptual model named ASAP for #DigitalAsset Platforms, leveraging insights from IT industry practices and central bank experiments Illustrated through examples and use cases of tokenized assets, demonstrating the possible usage and merits of modeling Digital Asset Platforms with four layers Four-layer ASAP model is anticipated to promote cross-platform interoperability, paving the way for a more cohesive digital asset ecosystem #FasterPayments #TokenizedDeposits #DigitalAssets #OpenBanking OurBanc Corporation

Eurex, Clearstream, VERMEG to broaden access to pan-European liquidity pool Eurex has partnered with Clearstream and VERMEG, provider of the Eurosystem Collateral Management System (ECMS), to expand the use of collateral of its leading pan-European cash-driven liquidity pool. The collateral management solution connects the ECMS, Clearstream’s Triparty services and Eurex’s GC Pooling. Implementation of ECMS in November 2024 will provide new opportunities for collateral optimisation and mobilisation in the Eurozone through GC Pooling re-use. This includes refinancing with national central banks, collateralisation of CCP margin, and collateralisation of bilateral margin. #collateral #liquidity #Europe #ECB #refinancing #TheDESK https://hubs.li/Q02xctX90

a great video presenting this risk case (interest rate risk in banking book and liquidity risk) in a simple way.

$4 trillion - the total Basel Committee data suggests was held in liquidity buffers by the largest global banks as of June 2023, with up to 30% allocated “for settling trades and making payments”. As Paul Golden explains while banks are required to “maintain a certain amount of capital reserves to cover their exposure obligations. The problem is that some banks have set aside more capital than necessary because they don’t have a real-time understanding of all available sources and uses of liquidity.” This is a really interesting POSTTRADE 360° article exploring why real-time visibility and control is crucial for banks to effectively monitor, measure, and manage intraday liquidity, as highlighted by our Alex Knight: Read more >> https://lnkd.in/gbkxJ3rr #payments #banks #liquidity

📑 The Disclosure Subgroup within the Network for Greening the Financial System (NGFS) today published an updated Guide on climate-related disclosure for central banks: https://lnkd.in/eWkpGdMW ⛑ This publication marks the culmination of three years’ work together with the excellent Liliana Jerónimo in leading the Subgroup. 🔎 The Guide underlines the critical role of transparency in navigating climate-related risks and opportunities within the financial sector - and it encourages central banks to lead by example by disclosing these risks and opportunities. 🌿 With the Guide, the NGFS delivers on its commitment to promote climate-related disclosure among central banks. 📢 The Guide is an operationalization of the FSB Task Force on Climate-related Financial Disclosures (TCFD) framework for central banks, based on the following high-level recommendations: • Governance: Disclose the central bank's climate-related objectives and decision-making processes. • Strategy: Disclose the climate-related impacts on the central bank and its strategic response. • Risk Management: Disclose the processes for managing climate-related risks, focusing on identification, assessment, and integration, within the central bank. • Metrics and Targets: Disclose metrics and targets relating to the central bank’s management of climate-related risks. 🙏 Thank you to all contributors, within and outside the NGFS, in making the Guide possible. And thank you to NGFS Chair Sabine Mauderer and Workstream Chairs Simone Robbers and Paolo Angelini for trusting Liliana and me with leading this work.

🌊 Liquidity risk has been a major concern since the collapse of Silicon Valley Bank last year, writes Evgueni Ivantsov, raising critical questions about regulatory requirements and the measures needed to prevent future crises. Evgueni, chair of the European Risk Management Council, outlines the insights he has learned from studying notable ‘victims’ of liquidity squeezes. 📉 The special nature of liquidity risk: Unlike other financial risks, liquidity risk is deeply tied to market confidence. Case studies show that a crisis of confidence often triggers liquidity crises, but these are symptoms of deeper issues like flawed business models and reckless investments. 🏦 Reputational crises and banking failures: Northern Rock's 2007 collapse highlighted how aggressive growth strategies and heavy borrowing can create a "time bomb." Similarly, SVB's shift to long-term securities left it vulnerable to interest rate risk, leading to a loss of depositor confidence. 💡 Preventing future liquidity crises: While maintaining liquidity reserves is crucial, they alone can't prevent a crisis. Effective reputational risk management is essential to maintain stakeholder confidence in a bank's business model and financial stability. 💬 What steps should regulators and banks take to strengthen liquidity risk management and how can we ensure market confidence is sustained? Read more below👇 https://lnkd.in/e_THEK7c #LiquidityRisk #Banking #FinancialRegulation

We just released a new working paper that looks at central bank capital. We evaluate it as a risk-sharing arrangement between the central bank and its shareholder (usually the Treasury). The arrangement is designed to preserve the independence and credibility of the central bank after adverse shocks on its balance sheet. In summary, the model is based on option pricing theory, where the central bank commits to distribute dividends when its capital is robust, while the shareholder may be called upon to recapitalize the bank, contingent on the realization of negative shocks on its balance sheet. We evaluate the trade-offs inherent in the two options, and establish a sequential game equilibrium approach to find a mutually beneficial agreement between the two parties. With Matteo Bonetti, Dirk Broeders, Damiaan Chen (Ph.D.)