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ALMM reporting (EBA)

What are additional liquidity monitoring metrics?

Additional liquidity monitoring metrics (ALMM) were designed by the Official Journal of the European Union to supplement information in the Liquidity Coverage Ratio (LCR). ALMM evolved following the 2007 liquidity crisis. The Basel Committee on Banking Supervision issued these new guidelines to add more granularity and transparency to liquidity reports. While there is overlap between the ALMM and LCR, the ALMM requires banks to report much more granular data. Banks must report ALMM on a monthly basis, except in special cases where reporting organizations may complete ALMM on a quarterly basis.

ALMM requires banks to fill templates and include instructions for:

  • Contract maturity analysis / a maturity ladder
  • Concentration of funding by counterparts and product
  • The concentration of counterbalancing capacity
  • Volumes, spreads, and roll-overs of funding

What is LCR?

First things first: what does LCR stand for? LCR stands for “liquidity coverage ratio.” The LCR is part of the Basel accord. LCR is a stress test to ensure that banks have enough highly liquid assets on hand to meet their short-term financial obligations in case of disruption. Banks are required to have 100% LCR to fulfill the Basel requirement.

What is the purpose of LCR?

If there are short-term disruptions, the LCR ensures that banks have enough liquid assets to ride out the storm without failing. LCR also prevents bank from lending high-levels of short-term debt. 

Who does LCR apply to?

The LCR applies to banks that have more than $250 billion in assets or $10 billion in on-balance sheet foreign exposure. Banks must hold highly liquid assets that are equal to or exceed its net cash flow over a 30-day stress period. Highly liquid funds are either cash or funds that can easily and quickly transfer into cash like treasury bonds or corporate debt.

What is liquidity reporting?

Liquidity reporting refers to the metrics and reports banks produce to ensure that they are meeting the Basel accords standards for liquidity. Liquidity reports are a part of liquidity risk management. If there is a market disruption, liquidity reports ensure that banks can navigate the cost pressures without collapsing. To create liquidity reports, banks need information systems that allow them to measure, monitor, and control liquid risks. 

How to calculate a liquidity ratio:

To calculate your liquidity coverage ratio, divide highly liquid assets by total net cash flow over a 30-day period.

E.g. If Bank X has highly liquid assets that total $100 million and $60 million in net cash flow over a 30-day period, they have 160% LCR. Thus, they would be successful in meeting the Basel requirement.

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