August 6, 2020

Optimization, LCR, and maximizing profit within your risk tolerance

BY Ayasdi Team

Financial institutions covered by the Basel III regulations are required to hold high-quality liquid assets (HQLA) at over 100% of their 30-day stress outflow risk – the so-called Liquidity Coverage Ratio or LCR. As of 2019, tier one banks were holding on average LCR of 136%. This equates to around $400 Billion and presents a significant opportunity for optimal management and increased profitability while maintaining the desired risk posture.

The calculation of the LCR ratio is dependent on the makeup of the portfolio and the types and sizes of different customer balances. One area where many institutions have a sub-optimal process is in the classification and forecasting of operational balances – a key liquidity driver because operational balances are deemed to be “stickier” in a stress scenario and are treated more favorably in the LCR calculation. This paper presents a new, more advanced methodology for accurately assigning and forecasting operational balances at different resolutions from the portfolio level right down to individual customers.

Read Whitepaper Here