Large Bank Supervision Forum eBook

Internal Use Only

Enhance and standardize liquidity ratios by measuring liquidity against non-contractual maturity deposits . . .

 The denominator for liquidity ratios varies across institution to institution, several are noted below: − Deposits − Deposits + Short Term Borrowings − Deposits + Borrowings − Funding − Total Assets − Total Liabilities − Volatile Liabilities  The industry should enhance and standardize liquidity ratios, so all institutions hold contingent liquidity sources against the level of non-term funding .  This methodology is only viable if prepayment optionality on all term deposits is eliminated and would demystify and standardize the amount of liquidity institutions are holding based on the amount of funds that could be withdrawn immediately.

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Internal Use Only The introduction of non-term funding as a proxy for the amount of liquidity a bank should hold is exemplified below . . .

Liquidity Ratios - Policy and Collateral Liquidity Ratios - Time Series

Liquidity Ratios - Policy and Collateral Liquidity Ratios - Time Series

10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

60.0%

56 .98%

45 .73%

50.0%

40.0%

25 .67%

31.99%

30.0%

16 .14%

20 .11%

20.0%

10.0%

0.0% 5.0%

1 .26%

1 .57%

0.0%

Example Bank

Minute 1

Day 1

Week 1

Month 1

Example Bank

Minute 1

Day 1

Week 1

Month 1

6,888

Total Cash and Cash Equivalents Available Current Remaining Borrowing Capacity Current Unpledged Investment Capacity Current Remaining Wholesale Capacity

6,888

Total Cash and Cash Equivalents Available Current Remaining Borrowing Capacity Current Unpledged Investment Capacity Current Remaining Wholesale Capacity

81,349

81,349

52,139

52,139

109,663 250,040 518,747 28,000

109,663 250,040 438,811

6,888

88,237 518,747 28,000

140,377 518,747 28,000

Total Available Liquidity

6,888

88,237 438,811

140,377 438,811

Total Available Liquidity

518,747 28,000

Total Deposits

438,811

Non-Term Funding

Short-Term Borrowings (< 12Months)

1.57%

20.11%

31.99%

56.98%

1.26%

16.14%

25.67%

45.73%

Liquidity Ratio

Liquidity Ratio

Total Deposits + Short Term Borrowings

546,747 (79,587)

- Retail Time Deposits - Term Brokered Deposits - Term Listing Service Deposits

-

(349)

- Short Term Borrowings

(28,000) 438,811

Non-Term Funding

All contractual funding is removed from denominator for the liquidity ratios as it cannot be withdrawn until the maturity date making the cash flows associated with it predictable.

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