Microgen has today announced that it has added liquidity calculation functionality to its Microgen Accounting Hub (MAH), which is powered by Microgen Aptitude, its market leading Business Process Platform (BPP). The new functionality has been added in response to the Bank for International Settlements Paper – Principles for Sound Liquidity Risk Management and Supervision (June 2008) – which requires banks to measure, monitor and control their liquidity risk position for all cash flows of assets and liabilities, currencies in which banks are active and settlement activities. MAH is now able to generate a liquidity analysis in relation to these factors based on data regarding a bank’s assets and liabilities, its off balance position and currency positions, factoring in the impact of settlements and collateral.
As financial institutions are increasingly forced to raise capital from sovereign funds, Eastern institutions, mergers and through share capital issues, it is clear that a balanced liquidity profile will be mandatory in future. For many the challenge lies in two parts, first to have a complete picture of exposures across a complex financial institution and its many divisions and legal entities, and the second is to profile liquidity. Such exposures must be summarised with full access to the underlying detail, and whether it is or not it is held in a trade or investment book. Thereafter provision must be made for changes in the liquidity of the market for whole groups of instruments, as has recently happened in the markets for credit and mortgage trading.
Elizabeth Sipiere, MD Banking, Microgen commented: “One of the effects of the credit crunch is a massive drop in liquidity, which has caused various institutions to not only have to raise capital but also generally tighten liquidity processes. Visibility into liquidity and understanding the factors that impact this will be extremely important in the current financial climate. Within banks, being able to calculate your liquidity accurately and quickly will become a trust factor and could impact their market valuation. It isn’t mandatory yet, but with the pressure on financial services, it is arguably only a matter of time before it is.”
The Microgen Accounting Hub already stores full details of transactions and their balance details, against which the liquidity profiling will be run. This profiling combined with a full understanding of asset holdings across today’s many faceted trading, insurance and banking institutions ensures greater awareness of the likely capital position of a bank during times of changing liquidity of certain assets as well as providing visibility into the true liquidity of an institution at any time.