How to Choose a Liquidity Risk Management Solution?

How to Choose a Liquidity Risk Management Solution
How to Choose a Liquidity Risk Management Solution

Liquidity is a chief concern for companies that provide financial services, and these include banks both big and small. In many worst-case scenarios that are already playing out in the world, banks have been forced to downsize their businesses or even exit lines of business because of their ongoing liquidity problems. Knowing what’s at stake, many banks have looked into upgrading their tech stacks to include new and more efficient liquidity risk management software. Your enterprise may be in the same position, and you may be in the process of comparing different liquidity risk management solutions from different providers.

How will you be able to choose a solution that will allow you and your risk management team to navigate modern-day liquidity crises and to practice effective capital management? To make good on such a significant investment, here are five tips for selecting the right liquidity risk management solution for your bank.

Purchase a Solution That Affords You Quick, Easy, and Exhaustive Overviews of Your Liquidity

The first thing that you should demand out of your new software is better visibility over your bank’s evolving liquidity position. Your solution should help you keep track of factors that affect your bank’s risk profile, like the state of the local and global markets you operate in and how resilient your current liquidity buffer is. It should also make it easier for you to identify and easily keep track of your high-quality liquid assets, especially in times of market stress.

Some features that you’ll want to look for in a new liquidity risk management solution are up-to-the-minute dashboards, which will give you instant and accurate information on your liquidity situation, and data-rich visuals that will signify your bank’s progress on following its liquidity metrics.

Buy a Solution That Gives You Advanced-Level Calculation and Analytics Capabilities

Your new solution should also be able to do more than the software tools that you currently use for liquidity risk management. The investment will only be worth it if you’re able to upgrade your risk management capabilities in a significant way, and if it can prepare you for an increasingly complex future.

Invest in a solution that gives you the ability to do granular-level analysis and calculations. Ask your provider about how the new software can help you fulfill these tasks in a faster, more accurate, and more cost-efficient way. If your solution can take you several steps above your current ability, it will be a valuable long-term investment for your bank indeed.

See How Your New Solution Helps You Navigate Your Current Liquidity Metrics

Next, explore a solution that can easily adjust to the liquidity metrics your institution already follows. The software should work in service of your metrics by adding clarity about your liquidity situation, instead of muddying it up like other technologies are wont to do.

The overall goal should be for you and your risk management team to align your trusted liquidity metrics with the new tech, all so that you can track your progress seamlessly. The software should also be responsible for an improvement in your risk disclosure practices, which will be crucial in any decision involving your capital management.

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Onboard a Solution That Allows You to Deploy and Test Multiple Liquidity Risk Scenarios

One of the biggest pitfalls a bank can fall into is complacency over its liquidity and solvency situations. Unfortunately, many banks are ill-equipped to face situations in which they are not completely liquid or solvent. For your bank to avoid deer-in-the-headlights moments in times of liquidity crises, you need to be able to imagine your next moves according to multiple liquidity risk scenarios.

To that effect, your solution should be able to accommodate extensive stress testing and should come equipped with multiple liquidity scenarios for these tests, from the ones that can reasonably take place in stable markets to the ones that will characterize industry-wide liquidity crises. If you’re able to envision your bank’s next move in any of these situations, you’ll be able to achieve a greater level of agility and you will become more flexible in your crisis response.

Find Out How Your New Solution Can Help You with Liquidity Risk Compliance

Lastly, choose a solution that will make the cumbersome task of liquidity risk compliance easier on your team. Any changes in regulatory compliance for items like liquidity coverage ratios (LCRs) and net stable funding ratios (NSFRs), as per the Basel Committee and the Dodd-Frank Act, should be instantly executable by your software.

Your solution will be worth its salt if it can swiftly and efficiently carry out all the liquidity computations you need to do in order to be fully compliant with your regulators. Don’t leave regulatory compliance out of your list of non-negotiables in a new liquidity risk management solution.

Get the Most Out of  New Liquidity Risk Management Solution

A viable software solution will cement your bank’s liquidity position and help you make the wisest business decisions in times of liquidity crises. Use your solution to achieve 100% visibility and understanding over your liquidity risk, which will empower you to stay both as liquid and as solvent as possible in challenging market circumstances.

Mark Funk
Mark Funk is an experienced information security specialist who works with enterprises to mature and improve their enterprise security programs. Previously, he worked as a security news reporter.