A GPS on the map of liquidity & funding

ActiveViam |
July 2, 2024

A GPS on the map of liquidity & funding

The financial landscape continually swings between phases of quantitative easing and times of limited funding, where securing and clearing transactions becomes crucial. Last year, sudden bankruptcies highlighted how reputation risks, intensified by the speed of online communication and social networks, can amplify these challenges at the institutional level.

Greg Becker, ex-CEO of Silicon Valley Bank, stated in front of the United States Congress:

“The leadership team and I made the best decisions we could with the facts, forecasts, and outside expert advice available to us at the time […] the link to SVB caused rumors and misconceptions to spread quickly online.”

-Greg Becker, prepared remarks to Congress

Liquidity scenario and contingency plans are like a map

Traditionally, institutions have designed their liquidity strategies and contingency plans as part of their governance processes, adhering to ILAAP standards. This involved deploying asset and liability management tools designed to run sophisticated cash flow models as part of a batch calculation process on a monthly, weekly, overnight basis. Best practices have included extracting liquidity views from these simulations and using these governance scenarios as the foundation for additional stress tests, often conducted in spreadsheets at an aggregate level. These scenarios and contingency plans acted as the map treasurers would use to guide themselves through daily operations, combined with expert judgment and operational procedures for handling volatile days.

Liquidity Risk Managers and Treasurers are now looking for a GPS system

Today, as T+1 settlement becomes the norm and clearing transactions across time zones is now an end-of-day exercise, institutions worldwide are shifting gears.

ALM managers and treasurers want to move beyond forecasted liquidity maps to see how actual cash flows materialize compared to expectations. By pinpointing their current position and balances on the map, they can assess the severity of the situation and manage emerging trends before a spiraling chain of events triggers an internal or market-wide crisis.

First, to build effective monitoring dashboards, they need to gather historical patterns. This data helps them develop limit monitoring models and alert systems, which can highlight potential problem areas in the balance sheet for treasurers and risk managers.

Next, to design and execute their contingency plans, treasury and risk teams need to use hypothesis testing to answer ad-hoc “what-if” questions. These questions are usually specific to a sub-portfolio or a small group of counterparties, leading to a high volume of inquiries on volatile days.

However, these one-off assumptions are not configured, nor can they be processed timely enough as part of the ALM batch scenarios.

This is where Atoti comes into play

ActiveViam’s flagship solution, Atoti, provides an operational intelligence framework supporting daily and intraday operations, communication and decision making. Delivering instant insights on all analytics and data flows shared by the front office, treasury, risk and finance teams, Atoti grants all stakeholders a consistent understanding of current positions, risks, profitability, funding, hedging and collateralization.

As part of the operational intelligence framework, transactions can be adjusted instantly, hypotheses can be tested in what-if scenarios, while limits and alerts prompt users to action.

In the context of liquidity management, Atoti relies on existing ALM calculations that provide a detailed inventory of assets and funding resources, down to cash flow data projected in different market scenarios over a series of future time buckets. Using these analytics as a data source, Atoti provides an agile analytical framework that bridges the gap between large volumes of detailed data and enhanced operational agility.

Agile Analytics & Control 

Atoti facilitates the investigation and explanation of forecasts across multidimensional cubes, drilling down to transaction and cash flow level.  By monitoring the daily evolution of key ratios, it helps explain risk sensitivities to external trends and quickly identifies the exact cause of a deviation compared to expectation.

Strategy Definition and Testing

In support of ALCO challenges required under ILAAP, Atoti helps answer any ad-hoc question treasury and risk have, allowing users to shift specific assumptions as part of “what-if” hypothesis testing. Quantifying possible damage, it supports reverse stress test, and goal-seek rebalancing functions to help design a contingency plan.

Monitoring & Decision Making 

To help navigate unfolding stress situations, Atoti gathers data from both ALM and treasury systems to display, instantly and side by side, how treasury cash flows unfold throughout the day, and their potential impact on key ratios and forecasts. Limits and alerts then highlight specific areas of concern for users.

Historical Analysis 

Finally, by tapping into long-term historical data stored in a data warehouse or data lake, Atoti helps in understanding long-term, multidimensional trends. It can capture historical statistics across any aggregation criteria a data scientist would use to identify new behavioral patterns or optimize treasury limits and management practices.

Overall, Atoti delivers instant insight on your current situation

With this framework in place, treasurers and liquidity managers can confidently

  • Investigate and share information between teams in any circumstances
  • Test hypothesis to adjust their strategy, and contingency funding plans
  • Calibrate limits to identify the severity of treasury positions
  • Manage emerging trends before they escalate during situations of liquidity stress

Last but not least, and conversely, during normal circumstances, Atoti operational insights help front office and treasury teams identify tactical opportunities.

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