1 / 26

AFIAA Conference Liquidity Management

AFIAA Conference Liquidity Management. Current developments to meet prudential standards. Overview!. CU industry snapshot Recap current liquidity standards; CU current liquidity performance; Post GFC APRA liquidity standard review; CU Funding sources; CU Investment sources ;

hue
Download Presentation

AFIAA Conference Liquidity Management

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. AFIAA ConferenceLiquidity Management Current developments to meet prudential standards Credit Union Financial Support System - CUFSS

  2. Overview! • CU industry snapshot • Recap current liquidity standards; • CU current liquidity performance; • Post GFC APRA liquidity standard review; • CU Funding sources; • CU Investment sources; • RBA ESA & Repo’s; • CUFSS commercial • 52 Mergers – reasons and causes; • Questions. Credit Union Financial Support System - CUFSS

  3. CU Industry Snapshot –March 2010 • BS Assets $46 billion • Sec Loans $6 billion • Growth 6.27% - losing MS • Capital strong 8.46% • Liquidity strong 16.28% • Net interest margin competitive 2.75% • Profitability moderate 0.63% ROA • Costs to income moderate 74.37% • Delinquency very low 0.77% • Consolidation – average 12 p.a. Credit Union Financial Support System - CUFSS

  4. Liquidity Standards APS210 Objective – maintain sufficient liquidity to meet obligations as they fall due across a wide range of operational circumstances Responsibility Board and Management • implement policy • ensure compliance to APS • Review annually; • agree with APRA • inform APRA Credit Union Financial Support System - CUFSS

  5. Liquidity Risk Policy inclusions • Risk appetite; • Measurement system; • Procedures to manage; • Define responsibilities & controls; • Formal contingency plan; • scenario analysis • (MLH exempt) Operational liquidity needs 15% Minimum 9% of total adjusted liabilities Credit Union Financial Support System - CUFSS

  6. HQLA “must be free from encumbrances” • Cash • RBA re-purchase securities; • ADI “investment grade” bank bills, CD’s; • ADI deposits (call or 2 day convertible; • Others securities approved by APRA CUFSS 3.2% MDR EXEMPTED Credit Union Financial Support System - CUFSS

  7. CUFSS HQLA Credit Union Financial Support System - CUFSS

  8. CU HQLA BANDS Credit Union Financial Support System - CUFSS

  9. APRA review of ADI Liquidity risk Process: • APRA announced mid 2008 – middle “CC” just before “GFC”; • APRA Discussion paper issued September 2009; • Advise early 2010 implementation deferred due to BASEL II till late 2010 Key recommendations: • Definition of HQLA – RBA repos & Gov’t securities; • MLH to continue; • Enhanced reporting; • Scenario planning; • Board strategy re risk tolerances; • Operational dependence; • External auditor role; Public disclosure. Credit Union Financial Support System - CUFSS

  10. CU FUNDING – AR June 2009 Credit Union Financial Support System - CUFSS

  11. Where the funding comes from? Credit Union Financial Support System - CUFSS

  12. Margin squeeze an ongoing challenge in normal times but more severe in this market Credit Union Financial Support System - CUFSS

  13. CU FUNDING SOURCES • 5 CU’s below 75% range from $2.8 million - $185 million; • 3 rely on strong retained profits; • 2 rely on wholesale deposits from other CU’s , Bridges and borrowings – model flawed? Credit Union Financial Support System - CUFSS

  14. Inter CU Depositing/Lending • Quantified at $355 million; • Biggest individual lender $145 million; • Biggest receiver $77 million; • Is a risk in that in the event of a liquidity crisis funds will probably need to flow back to lender • APS 210 Liquidity standards do not require borrowings to be offset in HQLA calculations • Issue of double counting HQLA? Credit Union Financial Support System - CUFSS

  15. CU INVESTMENT – AR June 2009 Credit Union Financial Support System - CUFSS

  16. Where we invest our funding? Credit Union Financial Support System - CUFSS

  17. Reserves / Capital Credit Union Financial Support System - CUFSS

  18. CU RESERVES/CAPITAL Credit Union Financial Support System - CUFSS

  19. RBA Exchange Settlement Accounts (ES) • Accounts held with RBA by banks to meet inter-settlement obligations; • RBA introduced term deposit (usually 1-2 maturities) facility Oct 08 for ES holder; Credit Union Financial Support System - CUFSS

  20. RBA Repurchase Agreements (REPOS) RBA buys securities for agreed term • Term before GFC were usually 3 months offered usually weekly; • GFC extended to 6 and 12 months with daily offerings; • The collateral ranges from government securities to private securities and residential mortgage backed securities (RMBS) Credit Union Financial Support System - CUFSS

  21. Access to RBA Market Operations ESA/REPO/RITS • All banks; • BS – IMB, Greater, Heritage, Rock; • Cuscal, Indue, ASX, ASL. REPO/RITS • Wide Bay; • State Gov’t treasury’s • NSW Police CU PROCESS • 18 -24 months; • No blueprint; • Significant management time; • $20k direct costs; • Strong RBA due diligence; Credit Union Financial Support System - CUFSS

  22. CUFSS Functions: • Administer the “Emergency Liquidity Support Scheme”; • Monitor members Liquidity, Capital and Profitability; • Liaise with members and regulators Profile: • 92 members (86%); • $39.4 billion assets (86%); • Access to 1.3 billion via MDR 3.2%; • Operating budget $350-400k Credit Union Financial Support System - CUFSS

  23. Has the self regulated emergency liquidity support system been successful? • No depositors have lost deposits or interest; • No member liquidations or adverse media stories; • One depositors have lost deposits or interest; • No member liquidations or adverse media stories; • One intervention to invoke emergency support to avoid potential reputation risk; • Early consultation between many mutual ADI’s & CUFSS has worked to resolve issues or facilitate solutions and voluntary mergers; • Close consultation between CUFSS, APRA, Cuscal and CU’S; • Quarterly statistical reporting to all members. Credit Union Financial Support System - CUFSS

  24. 52 Mergers 2005-2010pressures to merger Credit Union Financial Support System - CUFSS

  25. Causes for 52 mergers 2005 -2010 Some lessons • 20 of the 52 mergers 2005 – 2010 have not guaranteed them a long term future; • Member services only marginal; • Board politics; • KPI’s did not improve; • Multi-branding; • Some illogical bond fits; • No liquidity issues have forced merger Credit Union Financial Support System - CUFSS

  26. Thank you - Questions! Gary Eggert Executive Officer Credit Union Financial Support System (CUFSS) Level 1 1 Margaret Street SYDNEY geggert@cufss.com.au / Telephone 02 82999009 Credit Union Financial Support System - CUFSS

More Related