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slide2

Incorporating Liquidity Risk into Funds Transfer Pricing: Progress and Challenges

Agenda

6.30 – 6.35: Welcome - PRMIA Steering Committee member Donald Lawrence, UCL6.35 – 6.45: Introduction to the day’s event by Vijay

6.45 – 7.30 (flexible): Opening remarks by Kumar (FSA) followed by Arno Commerzbank)

7.30 – 8.00 (flexible): Panel discussion

8.00 (flexible) onwards: Drinks at the Bar and networking

ucl prmia course
UCL - PRMIA Course

A Complete Course in Risk Management

6 – 10 February, 2012, London

Day 1: Foundations of Risk Measurement and Risk Finance Theory

Day 2: Financial Markets & Instruments; Market Risk Management

Day 3: Credit & Operational Risk Management

Day 4: Capital Allocation and Liquidity Risk Management

Day 5: Crisis Management and Non-Market Risk

global risk conference
Global Risk Conference

Save the date!

10th Anniversary PRMIA Global Risk Conference

14th-16th of May 2012

Marriot Marquis, NY

Visit www.prmia.org/globalriskconference

slide5

Incorporating Liquidity Risk into Funds Transfer Pricing: Progress and Challenges

Arno Kratky - Head of Liquidity Analytics, Group Treasury, Commerzbank

Kumar Tangri - Risk Specialist, ALM & Liquidity, FSA

Vijay Krishnaswamy- Partner and Head of Enterprise Risk Management, Hymans Robertson

slide7

Today’s Agenda

  • How are regulations incorporating FTP into liquidity management
  • Will FTP play a larger role in future regulation
  • Things to look out for
slide8

Overriding message

  • Good Funds Transfer Pricing practice drives sustainablebusiness models.
  • Messages from Funds Transfer Pricing help develop strategy
funds transfer pricing what is it
Funds Transfer Pricing – what is it?

Funds Transfer Pricing (FTP) is the mechanism by which the

cost, benefits and risks of liquidity is reflected to a firm’s

business lines – i.e. a sophisticated, forward looking pricing

model.

It is an internal measurement and allocation process that

assigns a liquidity risk-adjusted profit contribution value to

funds gathered and lent or invested by the firm.

FTP is one aspect of full Transfer Pricing, which builds hurdle

rates by inclusion of cost of capital (for instance for credit

risk).

slide10

How are regulations incorporating FTP into liquidity management

  • BIS - Principles for Sound Liquidity Risk Management and Supervision [Sept 2008] {Principle 4}
  • FSA – PS09/16, Strengthening Liquidity Standards [October 2009] {BIPRU12.3.15E} {BIPRU12.5.4R}
  • EBA – CP36 Guidelines on Liquidity Cost Benefit Allocation [March 2010]
how are regulations incorporating ftp into liquidity management
How are regulations incorporating FTP into liquidity management
  • PS09/16, Strengthening Liquidity Standards {BIPRU12.3.15E}

States that firms should accurately quantify liquidity costs, benefits and risks for

    • product pricing
    • performance measurement and incentives
    • new product approval

Applies to significant business activity – on and off balance sheet

Consider FTP in normal and stressed conditions

Clear and transparent – needs to be understood across the business

11

how are regulations incorporating ftp into liquidity management1
How are regulations incorporating FTP into liquidity management
  • PS09/16, Strengthening Liquidity Standards {BIPRU12.5.4R}

Requires firms to include assessment of compliance with

BIPRU12.3 and BIPRU12.4 (systems and controls requirements)

in the ILAA

Compliance influences ILG

12

will ftp play a larger role in future regulation
Will FTP play a larger role in future regulation
  • Andrew Bailey, Executive Director, Bank of England and Director, UK Banks and Building Societies, FSA - Santander International Banking Conference2009

“fire prevention is better than fire-fighting. We cannot justify having a

banking system that depends on the use of public money to douse

the fire when the crisis comes. And we also cannot allow conditions

to exist where risks are taken on the basis that this backstop exists.”

– Santander International Banking Conference 2009

13

will ftp play a larger role in future regulation1
Will FTP play a larger role in future regulation
  • Withdrawal of taxpayer support – whether implicit or explicit
  • Solo self sufficiency and sustainable business models
  • Recovery and Resolution Planning
  • Good Funds Transfer Pricing practice drives sustainablebusiness models.

14

what do and will regulators expect
What do and will regulators expect
  • FSA Dear Treasurer letter on Funds Transfer Pricing

(http://www.fsa.gov.uk/pubs/international/ftp_treasurer_letter.pdf)

  • Benefits and pitfalls

Benefits

Informs business strategy by identifying the liquidity risk adjusted return from

business activities. It helps prevent firms “sleep walking” into business where

the true cost of funding is not covered.

Contributes to a sustainablebusiness model.

Consequence of poor FTP

Misallocation of liquidity resource – like capital, liquidity is scarce and needs to be

used wisely.

Conduct of loss making business or business where reward is not commensurate

with risk.

15

slide16

What do and will regulators expect

  • Things to look out for
  • FTP governance – who owns and challenges the model? Can it be gamed or arbitraged? Is it transparent to stakeholders? Is treasury conflicted?
  • What components are charged? Is the cost of liquidity buffer recharged? Are all aspects of liquidity risk accounted for?E.g. intra day liquidity, FSCS costs
  • Is FTP accurate? Does it capture marginal costs? Can it be back tested? Are there un-priced risks?
  • Approach to back book – does this distort new product pricing?
slide17

What do and will regulators expect

  • Things to look out for
    • How detailed is FTP? Is it granular enough to influence strategic and day to day transaction decisions?E.g. does it distinguish between asset origination which can be securitised versus assets that can’t?
  • Does it incentivise appropriate business line behaviours?
  • SHOULD ENCOURAGE APPROPRIATE INCENTIVES – TO
  • WRITE AN OPTIMAL BUSINESS MIX
  • FRAMEWORK SHOULD BE PROPORTIONATE TO FIRMS’
  • SCALE AND COMPLEXITY - E.g. Frequency with which prices
  • are reviewed, frequency of back testing
slide19

What do and will regulators expect

FTP practices – marginal costing

19

funds transfer pricing marginal costing
Funds Transfer Pricing – marginal costing

Marginal cost

Yield (%)

Weighted average cost, back book

Time (t)

20

funds transfer pricing marginal costing1
Funds Transfer Pricing – marginal costing
  • Pros
    • Correctly captures the cost of doing new business
  • Cons
  • Build up of residual unallocated P&L impact due to:
    • FTP model not accurately reflecting the actual cost of funding which

might be incurred, e.g. model charges Libor + 150bp as marginal cost,

but actual incurred cost was Libor + 160bp

– management overlay, where a deliberate “subsidy” is embedded in

pricing to incentivise behaviours, e.g. provide 50bp extra credit for

stable retail deposits to incentivise gathering

funds transfer pricing marginal costing2
Funds Transfer Pricing – marginal costing

Yield (%)

FTP model assumptions

Asset

Maturity

Funding cost ≠ FTP model assumptions

Funding tenor ≠ FTP model assumptions

Maturity

Time (t)

Liability

Yield (%)

Yield (%)

Maturity

Asset

Asset

Time (t)

Time (t)

Liability

Liability

incorporating liquidity risk into funds transfer pricing progress and challenges arno kratky

Incorporating Liquidity Risk into Funds Transfer Pricing: Progress and ChallengesArno Kratky

Group Treasury

PRMIA, London January 18th, 2012

agenda
Agenda

4.

Implications for bank’s steering framework

1.

3.

2.

The Regulatory Framework

Interplay with Fund Transfer Pricing

Interplay with Internal Liquidity Management Framework

the building blocks of basel iii
The building blocks of Basel III

International standard: Basel III

BCBS 164 / 189

BCBS 165 / 188

Capital

Leverage Ratio

Liquidity

  • Liquidity Coverage Ratio LCR
  • Buffer to be held against short term liquidity shortages
  • Net Stable Funding Ratio
  • effectively limits maturity transformation
  • Monitoring tools (information only)
  • contractual maturity mismatch
  • concentration of funding
  • unencumbered assets
  • market-based data
  • Public disclosure
  • More and better capital
  • shift focus to core Tier I capital
  • excluding hybrid capital
  • deducting deferred tax assets
  • minority interests not considered
  • no Tier III component
  • Higher RWA
  • introduce credit value adjustment
  • account for correlation risk
  • higher charge on trading books (stress VaR, incremental risk)
  • increase counterparty risk charge(incentivise central counterparts)
  • Higher capital ratios
  • Counter-cyclical capital buffers
  • Introduction of general
  • leverage ratio
  • backstop ratio, not risk-based
  • nominator is balance sheet total plus (1) off-balance positions, (2) un-netted derivatives, (3) notional of written credit derivatives
  • denominator given by regulatory Tier I capital
  • broadly in line with IFRS accounting

European implementation: CRD 4

BCBS 189: Strengthening the resilience of the banking sector; BCBS 188: International framework for liquidity risk measurement, standards and monitoring

slide26

Understanding the Regulator‘s Perspective of Basel III in a Nutshell

Cash markets are fragile and can disappear quickly

Too much maturity transformation is unhealthy for the financial system

Interconnected financial sectors can collapse like a house of cards

There is good banking business (loans, deposits, service real economy)

There is bad banking business (prop trading, derivatives, casino)

slide27

Liquidity Coverage Ratio / Liquidity Factors

Impact on different product types on identical balance sheets:

assets

assets

50 Government Bond

Buffer 50

50 Government Bond

Buffer 201)

50 ABS Bond (illiquid)

Buffer 0

50 ABS Bond (illiquid)

Buffer 0

1) Only 20 units unencumbered since 30 funded via repo

but

liabilities

liabilities

Outflow 30

30 one week repo on ABS Bond

30 one week repo on Government Bond

Outflow 0

LCR 83%

LCR 1000%

30 O/N IB MM

Outflow 30

30 3-months IB MM

Outflow 0

40 3 months retail (stable)

Outflow 0

40 O/N retail (stable)

Outflow 2

No credit for short term secured funding of illiquid securities

No credit for short term wholesale (interbank) funding

slide28

Net Stable Funding Ratio / Liquidity Factors

Demonstration of the impact on different products and trading strategies:

Liabilities

Liabilities

3 Mon. CP non-financial

9 Mon. Repo

ASF 50%

ASF 0%

NSFR 250%

NSFR 0%

Assets

Assets

Corporate Bond AA

Corporate Bond AA

RSF 20%

RSF 20%

Assets

Assets

9-months loan to Hedge Fund

RSF 0%

Listed Equity

RSF 50%

Assets

Assets

3y Corp. Bond A+funded via 6m Repo

6m Reverse Repo on 3y Corp. Bond A+

RSF 50%

RSF 0%

2y Reverse Repo on Government Bond

RSF 100%

RSF 5%

5y Government Bond

Assets

Assets

Unencumbered mortgage loan Basel II KSA 35% >1y (independent on maturity)

Mortgage loan > 1y in covered pool funded by Covered Bond

RSF 100%

RSF 65%

+ Overcollateralisation for target rating

slide29

Liquidity Implications Non-Operational Corporate Deposits

Interplay between LCR and NSFR for non-operational corporate deposits and (short-term) corporate loans (1)

Assets

Liabilities

100m Non-op. Corporate Deposit

Buffer (LCR)

100% => 75m

75m Level 1 Asset

Outflow (LCR)

75% => 75m

5% => 3,75m

RSF (NSFR)

Remaining Cash

25m

25m Term Loan

100% => 25m

RSF (NSFR)

50% => 50m

ASF (NSFR)

=> 100m corporate deposits fund 25m term loans

50

75

= 174%

NSFR =

= 100%

LCR =

28,75

75

Though there is headroom in the NSFR, the bank can not lend more (in cash) due to LCR restriction

Buying Level 1 assets for the buffer itself generate an additional NSFR requirement

slide30

Liquidity Implications Non-Operational Corporate Deposits

Interplay between LCR and NSFR for non-operational corporate deposits and (short-term) corporate loans (2)

Assets

Liabilities

100m Non-op. Corporate Deposit

Buffer (LCR)

100% => 75m

75m Level 1 Asset

Outflow (LCR)

75% => 75m

5% => 3,75m

RSF (NSFR)

Remaining Cash

25m

46,25m Term Loan

100% => 46,25m

RSF (NSFR)

50% => 50m

ASF (NSFR)

=> 100m corporate deposits fund 46,25m term loans

21.25m short term wholesale > 30d

50

75

= 100%

NSFR =

= 100%

LCR =

Outflow (LCR)

0% => 0m

50

75

Extra cash

21.25m

In order to use the NSFR ‘capacity’ the bank has to extend its balance sheet and borrow another 21m > 30days at extra costs, which also may compromise the bank’s liquidity ratio (and bank levy)

slide31

Inefficient Liquidity Transfer within the Banking System (1/3)

Bank A

Bank B

Cash 5

LCR Buffer (100%) = 5

Retail Loan 100 RSF(85%) = 85

Equity 5

ASF(100%) 5

Stable Deposits 100 ASF(90%) = 90

LCR outflow (5%) = 5

Cash 5

LCR Buffer (100%) = 5

Equity 5

ASF(100%) 5

1

Bank B borrowing funds via stable deposits (<1yr) and lending on term to retail customers (<1yr, but no inflows < 30days). Bank A just holds cash.

Bank A Bank B

LCR > 100% 100%

NSFR > 100% 112%

slide32

Inefficient Liquidity Transfer within the Banking System (2/3)

Bank A

Bank B

Cash 10

LCR Buffer (100%) = 10

Loan to FI > 1yr 95 RSF(100%) = 95

Equity 5

ASF (100%) 5

Stable Deposits 100ASF(90%) = 90

LCR outflow (5%)= 5

Equity 5

ASF (100%) 5

Deposit from FI > 1yr 95 ASF(100%) = 95

Cash 0

LCR Buffer (100%) = 0

Retail Loan 100 RSF(85%) = 85

2

Liquidity Transfer of 95

Bank B may transfer liquidity within the banking sector to Bank A via a long-term money market loan. Bank A invests the proceeds into the same portfolio of retail loans as before.

RSF for Bank’s B loans increases from 85% to 100%, hence it can only lend 95 to Bank A (Bank B holds the balance in cash and hence increases its buffer). Using its cash balance of 5, Bank A can lend 100 to the private sector.

Bank A Bank B

LCR > 100% 200%

NSFR 118% 100%

slide33

Inefficient Liquidity Transfer within the Banking System (3/3)

Bank A

Bank B

Cash 10

LCR Buffer (100%) = 10

Loan to FI < 1yr 95

RSF(100%) = 0

Equity 5

ASF (100%) 5

Stable Deposits 100ASF(90%) = 90

LCR outflow (5%) = 5

Cash 0

LCR Buffer (100%) = 0

Retail Loan 100 RSF(85%) = 85

Equity 5

ASF (100%) 5

Deposit from FI < 1yr 95 ASF(0%) = 0

3

When the remaining maturity of the liquidity transfer runs below one year, the efficiency of the liquidity allocation gets impaired. Though the external economic position from the banking sector to the private sector remains unchanged, Bank A would now be required to take additional term funding to comply with the NSFR (inflating its balance sheet) passing on additional costs to its clients or has to withdraw its loans to its customers.

Bank A Bank B

LCR > 100% 200%

NSFR 6% >> 100%

slide34

Basel III – Commerzbank‘s Contribution to the Industry Dialogue

Participation in Industry working groups

Commerzbank plays an active role in liquidity working groups in various banking associations and bilateral discussions with aligned banks as well as with national regulators

Banking Associations

Aligned Banks

Regulatory Authorities

…and others…

agenda1
Agenda

4.

Implications for bank’s steering framework

1.

3.

2.

The Regulatory Framework

Interplay with Fund Transfer Pricing

Interplay with Internal Liquidity Management Framework

increasing complexity
Increasing Complexity

Regulation is a moving target and subject to substantial changes

Cumulative effects of regulation and associated (unintended) consequences on markets and banks business models are not well understood

Regulatory (minimum) requirements will become more binding and need to be actively managed

Ratios can not be seen in isolation but need to be managed simultaneously as ratios are interlinked. Measures which are positive for one ratio can turn out to have negative outcomes for another

Banks are left with only little flexibility to manage cumulative effects effectively and to manage liquidity efficiently

New regulations lead to alignment of liquidity management frameworks across banks which may result in more rather than less systemic risk

main differences between regulatory and industry approach
Main Differences between Regulatory and Industry Approach

Commerzbank SFR

Commerzbank SFR

Commerzbank SFR

Commerzbank SFR

Industry Approach **)

Regulatory Approach *)

Operational Liquidity Management

Liquidity Coverage Ratio (LCR)

  • Continuous observation period up to 12 months
  • Representation of cash flow over whole period
  • Wider definition of liquid assets
  • Consideration of central bank eligibility
  • Consideration of interbank funding potential
  • Decomposition into legal cashflows, behaviouraladjustments and liquidity capacity
  • Allows for different scenario calculation
  • Measure expressed as surplus
  • Observation period 30 days
  • 30 days point-in-time cumulative cash flow
  • Narrow definition of liquid assets (no financials)
  • Focus on secondary market liquidity
  • No roll-over assumption for interbank funding
  • Monoblock measure
  • Only combined stress scenario
  • Measure expressed as ratio

Short term

Structural Liquidity Management

Net Stable Funding Ratio (NSFR)

  • Less severe scenario w/o need for CM funding
  • Target corridor instead of strict limits
  • Assets and liabilities differentiated by product type and business owner
  • Less liquid securities funded on haircut
  • Core loan business requires stable funding
  • Matched funded structures considered
  • Contingent liquidity considered in stress portfolio
  • Covered bonds (self-issued) considered (partly) as stable funding also if remaining maturity < 1 year.
  • Severe Stress scenario
  • Minimum ratio 100% permanent
  • Assets and liabilities differentiated by type of customer and relationship
  • All securities require stable funding (haircut)
  • Loan business funded as per roll-over fiction
  • Matched funded structures not considered
  • Contingent liquidity require stable funding
  • Covered bonds (self-issued) not considered as stable funding if remaining maturity < 1 year, covered pool still attracts RSF

Long Term

*) BCBS 188 as of December 2010 **) Observed methodology across firms

slide38

Does Basel III overrule internal fund transfer pricing ?

Internal treatmentmore conservative than BIII

Internal treatmentmore aggressive than BIII

Internal treatmentconsistent with BIII

()

  • Only little impact on running business
  • The least need for adjustment
  • Is internal treatment still competitive ?
  • Will change of internal treatment be challenged by supervisor ?
  • Regulatory liquidity requirement need to be ‘subsidized’ by other products
  • Business in danger of being unprofitable
  • How to migrate to regulatory compliance ?
slide39

Does Basel III overrule Internal Funds Transfer Pricing ?

Compliance of external and internal requirements on aggregate level

Basel III

Internal

operational

LCR

Steering Independent

structural

NSFR

Less complex, but steering in case of breaches less efficient

slide40

Does Basel III overrule Internal Funds Transfer Pricing ?

Compliance of external and internal requirements on product level

Internal

Assets

Basel III

Assets

Loans

Loans

Deposits

Deposits

Facilities

Facilities

. . .

. . .

others

others

External requirements have significant influence but steering mechanism is synchronized

agenda2
Agenda

4.

Implications for bank’s steering framework

1.

3.

2.

The Regulatory Framework

Interplay with Fund Transfer Pricing

Interplay with Internal Liquidity Management Framework

integrated steering framework
Integrated Steering Framework

Basel III will influence internal processes, but is neither a blue-print for an internal steering system nor for an internal (liquidity) funds transfer price system

slide43

Does Basel III overrule internal fund transfer pricing ?

Major banks employ a liquidity management system and fund transfer pricing methodology similar to Basel 3 but which differ with regard to parameters. How does a bank cobe with the difference?

Working example (asset vs asset):

Balance Sheet Volume

RSF / internal requirement

Ratio met at overall levelbut triggered by different productsLoans -> ‚too expensive‘Facilities -> ‚too cheap‘

50%

100%

100m

Corporate Loan

100m

50m

1bn

Credit Facility

50m

100m

5%

0%

50m

InternalSF

Basel IIINSFR

50m

InternalRequirement

Basel IIINSFR

Options to deal with:

1. Treat Basel III / FTP separately -> two steering mechanism to follow2. Only adobt induced regulatory ‚minimum‘ requirement -> conservative / expensive but aligned on product level

3. Adjust FTP towards regulatory framework -> most consistent alignment, abandonment of own economic assessment, could be challenged by regulator

slide44

How to adopt Basel III to internal fund transfer pricing ?

Banks need to set steering signals to their trading units to manage restructuring of balance sheets. Timing is an important component. How fast should banks implement Basel 3 rules in FTP?

Working example: Funding of a financial bond

Currently, banks fund financials short term as they are tradable in financial markets. However, Basel 3 requires term funding latest by 2018. Banks have to adust their funding accordingly:

FTP(in bps)

FTP(in bps)

FTP(in bps)

3

2

1

Time

2018

2018

2018

2011

2011

2011

Options:

1. Keep current FTP and adjust as late as possible -> inappropriate adjustment to Basel 32. Adjust FTP immediately for anticipated B 3 funding costs -> triggering of unintended consequences?3. Phase-in higher charges over time and signal to the trading desks -> proportional migration to reg. environment

agenda3
Agenda

4.

Implications for bank’s steering framework

1.

3.

2.

The Regulatory Framework

Interplay with Fund Transfer Pricing

Interplay with Internal Liquidity Management Framework

where the business is affected
Where the Business is affected

Understand mechanics of Basel III and implications on business model

Analyze portfolio mix and identify which products will have different treatment under regulatory rules compared to current internal treatment

Consider potential pricing implications on anchor products (PK: retail loans & deposits, MSB: corporate loan book, C&M: trading portfolio, matched book, equity financing, ABF: secured financing)

Understand need of customers and potential implication for end-users (to facilitate dialog with supervisors)

Monitor competitors and their potential adjustments to product mix and/or pricing behavior

Assess potential to pass on additional costs or anticipate structural changes to product mix

Think about product innovation (but be aware of reputational limitation to exercise optionality)

behavioral adaption to nsfr
Behavioral Adaption to NSFR

NSFR Isolines

  • Potential Adjustments on Business Model
    • compress net position of derivatives
    • cut credit lines
    • focus on advisory business
    • revival of ‚originate and distribute‘ model

> 100%

= 100%

ASF

< 100%

ImprovingNSFR

1

NSFR

ASF

NSFR =

2

RSF

RSF

To improve a given NSFR (indicated by in the chart above) an institution has two options:

  • Adjust Asset Side
    • reduce maturities
    • shift to assets with lower RSF
  • Adjust Liability Side
    • increase maturities
    • shift to liabilities with higher ASF
  • The institution can increase the ASF by adjusting the liability side of ist balance sheet (e.g. liabilities with higher roll-over factors or longer duration)
  • The institution can decrease the RSF by adjusting the asset side of ist balance sheet (e.g. assets with lower roll-over factors or shorter duration)

impact oncosts

impact onearnings

potential steering measures to manage the lcr
Potential Steering Measures to Manage the LCR

Liquidity buffer

LCR =

(Cash outflow – Cash inflowcap 75%) ≤ 30d

Levers to manage the ratio:

Increase Cash inflow

(-> lower returns)

Decrease Cash outflow

(-> lower returns)

Increase Liquidity buffer

(-> higher costs)

Hold more Cash

Increase duration of liabilites (e.g. short term deposits)

Decrease duration of assets (e.g. short term loans)

Sell illiquid assets and buy level 1/2 assets

Increase stability of deposits (e.g. stable retail deposits and wholesale operational accounts)

Decrease potencial liquidity drains (credit/ liquidity facilities)

potential steering measures to manage the nsfr
Potential Steering Measures to Manage the NSFR

Available Stable Funding (ASF)

NSFR =

Required Stable Funding (RSF)

In principle, the bank has two levers to manage the ratio:

Decrease RSF (-> lower returns)

Increase ASF (-> higher costs)

Securitize existing business which is already term funded (and keep existing funding)

Sell (non-level 1/2) assets

Substitute assets with longer duration (>1yr) by assets with shorter duration (<1y)

Substitute liabilities with short duration (<1y) by liabilities with longer duration (>1yr)

Substitute assets with high RSF (illiquid bonds, term loans, retail loans) by assets with lower RSF (0%-risk weight govies, short term loans to financial institutions)

Substitute liabilities with low ASF (wholesale) by liabilities with higher ASF (retail)

Originate new liabilities (and invest cash into assets with lower RSF)

New asset business does not improve the ratio

regulatory requirements more than a compulsory excercise
Regulatory Requirements – More than a Compulsory Excercise

Liquidity requirements such as LCR and NSFR, as currently stipulated by known drafts of Basel III and CRD IV, respectively, will have much more significance for liquidity management and steering due to their pronounced stress-orientated design, which is more demanding than current national regulatory liquidity requirements in place

Forthcoming regulation will not allow for an escape clause, allowing institution to apply internal liquidity models for regulatory reporting purposes instead of standardised external rules. Hence, liquidity regulation becomes instantaneous binding once they become effective.

At the same time, financial markets evidence tightening liquidity situation expressed in terms of volatility, increasing liquidity premia and restraint liquidity supply, both in volume and tenor.

The combination of increasing regulatory (minimum-) requirements and increasing liquidity costs necessitate an efficient management and steering of liquidity in order to achieve an optimal level of compliance and to avoid extra-ordinary liquidity buffers and associated costs.

slide51

Visitors’ address:

Mainzer Landstrasse 153

60327 Frankfurt/Main

Germany

www.commerzbank.com

Postal address:

60261 Frankfurt/Main

Germany

Phone: +49 69 136-20

E-mail: info@commerzbank.com

Group Treasury – Liquidity Analytics

Contact: Arno Kratky

Phone: +49 (0)69 136 82657

Fax: +49 (0)69 136 81264

E-mail: arno.kratky@commerzbank.com

disclaimer
Disclaimer

Investor Relations

This presentation contains forward-looking statements. Forward-looking statements are statements that are not historical facts; they include statements about Commerzbank’s beliefs and expectations and the assumptions underlying them. These statements are based on plans, estimates and projections as they are currently available to the management of Commerzbank. Forward-looking statements therefore speak only as of the date they are made, and Commerzbank undertakes no obligation to update publicly any of them in light of new information or future events. By their very nature, forward-looking statements involve risks and uncertainties. A number of important factors could therefore cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, among others, the conditions in the financial markets in Germany, in Europe, in the United States and elsewhere from which Commerzbank derives a substantial portion of its revenues and in which it hold a substantial portion of its assets, the development of asset prices and market volatility, potential defaults of borrowers or trading counterparties, the implementation of its strategic initiatives and the reliability of its risk management policies.

In addition, this presentation contains financial and other information which has been derived from publicly available information disclosed by persons other than Commerzbank (“external data”). In particular, external data has been derived from industry and customer-related data and other calculations taken or derived from industry reports published by third parties, market research reports and commercial publications. Commercial publications generally state that the information they contain has originated from sources assumed to be reliable, but that the accuracy and completeness of such information is not guaranteed and that the calculations contained therein are based on a series of assumptions. The external data has not been independently verified by Commerzbank. Therefore, Commerzbank cannot assume any responsibility for the accuracy of the external data taken or derived from public sources.

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