The Liquidity Coverage Ratio During a Global Crisis

There is a reason you’re most likely reading this blog from home – the COVID-19 virus is sweeping the globe, creating an unprecedented international pandemic. Its effects can be felt in every aspect of our lives, and the financial industry is by no means any different. Luckily, there are a few measures to help the economy stay afloat during such a trying time.

The ECB has provided temporary capital and liquidity relief for banks, including lowering LCR requirements. This essentially frees up the banks to help businesses – especially small businesses – receive potentially company-saving loans to help them survive during this crisis. This, of course, is hugely beneficial for all parties involved, but it definitely comes with a challenge for financial institutions.

On top of the daily and monthly LCR reports that must be submitted to supervisors, new LCR amendments were introduced as of April 1st. With these new LCR measures comes a need to report significantly higher-quality and more granular data. The challenge here is that frequently this required data as it stands now is simply not detailed enough. This need for granular data on collateral needs to be thorough and divided per deal – not just on a counterparty-level.

This requirement for more granular data is part of a trend that is quickly becoming the standard, however, making this an opportune moment to have a holistic and sweeping look into your data management company-wide. By changing what kind of data you’re collecting now, you can ensure you’re ahead of regulations in the future – you can make better predictive models to manage your risks and liquidity more efficiently and stay ahead of the curve in the long-run.

The other major change that COVID-19 has brought with it is that all Basel IV deadlines have been extended by 1 year. This shouldn’t mean that you slow down your efforts to comply, however. It’s best to stay vigilant and on track- look at this time as a buffer and not a goal.

We, of course, specialize in helping businesses meet all the challenges outlined in this blog using our expertise and extensive knowledge. If you’d like any more information about this or want to know how we can help your business optimize, please don’t hesitate to reach out.

As always, thanks for reading – and please stay safe and wash your hands.


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