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Thought Paper
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Data availability
With the additional requirements, it is essential for Banks to focus on capturing and maintaining appropriate data required for monitoring, control and regulatory reporting.
Data consistency
Basel III requires data to be consolidated across the Bank, as well as captured and maintained accurately, at a certain level of granularity.
Liquidity
Real Time Liquidity Position
Leverage
Dat Consisten a cy
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Thought Paper
Liquidity
Short term liquidity
Under Basel III, Banks are required to closely monitor their liquidity positions. Therefore their treasury system must have the capability to monitor liquidity in real time across currencies, over different time horizons, with precision. It must provide a "liquidity view" which can be used to monitor cash flows across asset classes or specific deal types / trading books, and it should be possible to consolidate these values into a single currency, if required. Further, it should be possible to simulate the liquidity position for stressed market inputs for any or all currencies, which is an essential input for Liquidity Coverage Ratio (LCR) and LCR by significant currency ratios. to have a very flexible real time asset - liability cash flow mapping that provides precise gap information across time buckets. The system must also provide securities positions across any time bucket. All these time bucket views should be completely user configurable and capable of being drilled down to exact dates. It should be possible to generate a snapshot of these positions for regulatory reporting.
Concentration funding
The Concentration Funding Ratio is used to monitor Banks' liabilities against significant counterparties, instruments and in significant currencies. The treasury system must be able to report all assets and liabilities for different counterparties, currencies and instruments in detail, which is required to generate the Concentration Funding Ratio. Additionally, the position keeping module must be able to monitor and control positions against significant counterparties, if desired.
Stable funding
The Net Stable Funding Ratio (NSFR) encourages Banks to maintain stable sources of funding even under stressed scenarios. The treasury system's position keeping module must have the ability to value assets and liabilities under any stressed market input, which in turn can be used for the calculation of NSFR.
Unencumbered assets
The treasury system's collateral management feature must track and report collaterals that have been posted with counterparties as well as maintain collaterals posted by the counterparties, all of which is necessary for reporting unencumbered assets.
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Collateral management
Collateral management is an area of specific focus in Basel III. Ideally, the treasury system's collateral management module must be ISDA compliant and support collaterals for multiple exposures based on collateral agreements
Credit ratings
Basel III encourages Banks to use internal ratings in conjunction with external ones. Therefore, the treasury system must support capture of multiple external credit ratings and report relevant data for internal assessments.
Leverage
Basel III aims to constrain excess leverage so as to avoid the kind of deleveraging seen during the crisis. The treasury system should be capable of reporting on and off balance sheet exposures of supported assets, which are the primary inputs for the calculation of the Leverage Ratio.
The bottom-line
The growing complexity in the regulatory environment, such as that ushered in by Basel Regulations makes it difficult to manage multiple systems in the treasury function. What is needed is a scalable treasury system with a fully integrated front to back office structure, capable of supporting multiple assets.
Karthik S, FRM
Product Consultant, Infosys
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Thought Paper
About Finacle
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2012 Infosys Limited, Bangalore, India, Infosys believes the information in this publication is accurate as of its publication date; such information is subject to change without notice. Infosys acknowledges the proprietary rights of the trademarks and product names of other companies mentioned in this document.