FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Facilitating the Implementation of the IFSB Standards Workshops for RSAs (Banking Sector) GN-6: Quantitative Measures for Liquidity Risk Management Guidance Note Day 1 - Session 2 Sani Tazara Muhammad Member of the Secretariat, Technical and Research, IFSB 14 – 15 November 2019 | Jakarta, Indonesia Organised By: Hosted By:
FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Outline of the Presentation Components of Total Net Cash Outflows Formula for Calculating NFSR Available and Required Stable Funding Case Study
FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Components of Total Net Cash Outflows Net Cash Outflows Total expected cash outflows minus total expected cash inflows in the specified stress scenario for the subsequent 30 calendar days. Cash Outflow Cash Inflow Total expected cash outflows are calculated by multiplying Total expected cash inflows are calculated by multiplying the outstanding balances of various categories or types of the outstanding balances of various categories of liabilities and PSIA, and OBS commitments by the rates at contractual receivables by the rates at which they are which they are expected to run off or be drawn down. expected to flow in under the scenario up to an aggregate cap of 75% of total expected cash outflows. To avoid double counting, for assets Supervisory authorities may that are included as part of the stock apply different run-off and Proper monitoring and of HQLA, the associated cash calibration of the data over a draw-down rates based on inflows cannot also be counted as results of stress testing to the sufficiently long period of time cash inflows in calculating net cash IIFS’ portfolio outflows
FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Treatment of PSIAs Restricted PSIA (RPSIA) Unrestricted PSIA (UPSIA) usage of the funds by the IIFS is subject to the IIFS has full discretion in making investment investment criteria specified by the IIFS in decisions the Muḍārabah or Wakālah contract there is typically no commingling of IIFS IAH funds may be used “ commingled ” in an asset funds and pool in which shareholders ’ IAH funds. and current account holders ’ funds reported off-balance sheet in financial reported on-balance sheet in financial statements. statements. The applicable run-off factor for PSIA depends on the withdrawal rights of the IAH and whether they are retail or wholesale accounts. Run-of Rate For RPSIA with no withdrawal rights prior For UPSIA, in some cases withdrawals will to maturity, the IIFS managing the RPSIA be permitted either on demand or at less than 30 days’ notice , and the supervisory is not exposed to run-off for LCR purposes, unless the contract maturity date authority will need to apply the falls within the next 30 days . appropriate run-off
FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Categories of Cash Outflow • Fully insured by a Sharī`ah -compliant deposit Stable insurance scheme (5% or 3%) • Effective deposit insurance scheme enables prompt payouts to the account holders Retail Deposits and PSIA Unstable • Not falling in the above category of stable accounts will be considered as “ less stable ” accounts. (10%) Supervisory authorities may further split this type of account into additional categories based on their risk profile and should assign different run-off rates for each category, with a minimum run-off rate of 10 %. Foreign currency retail accounts that are denominated in any other currency than the domestic currency in the home jurisdiction would also fall into the “less stable” category. Supervisory authorities have discretion to apply a higher run-off rate if it is expected that account holders would withdraw their term accounts in a similar fashion as retail current account holders during either normal or stress times.
FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Categories of Cash Outflow • Fully insured by a Sharī`ah -compliant deposit Stable insurance scheme (5% or 3%) • Effective deposit insurance scheme enables prompt payouts to the account holders Retail Deposits and PSIA Unstable • Not falling in the above category of stable accounts will be considered as “less stable” accounts. (10%) In jurisdictions where there is no Shariah compliant insurance scheme or RSA cannot identify which retail accounts will qualify for the stable category, the accounts should fall into the less stable category. Supervisory authorities may further split this type of account into additional categories based on their risk profile and should assign different run-off rates for each category, with a minimum run-off rate of 10 %. Foreign currency retail accounts that are denominated in any other currency than the domestic currency in the home jurisdiction would also fall into the “ less stable ” category. Supervisory authorities have discretion to apply a higher run-off rate if it is expected that account holders would withdraw their term accounts in a similar fashion as retail current account holders during either normal or stress times.
FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Categories of Cash Outflow (2) Unsecured Wholesale Funding non-financial funds from an corporates and funding from institutional small business operational sovereigns, central other network of customers. accounts banks, MDBs and institutions cooperative IIFS PSEs. 5% and 10% 5% and 25% 25% 20% and 40% 100% Supervisory authorities may, however, assign different run-off rates if these are supported by a detailed study and analysis of the behaviour of the wholesale funds. A supervisory authority may also choose not to permit IIFS to utilise the operational accounts run-off rates in cases where concentration risk exists – for example, where a significant proportion of operational accounts is provided by a small number of customers.
FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Categories of Cash Outflow (3) Secured funding Secured funding is defined as liabilities and general obligations with maturities of less than 30 days that are collateralised by legal rights to specifically designated assets owned by the counterparty in the case of bankruptcy, insolvency, liquidation or resolution . Categories for outstanding maturing Amount to add to cash secured funding transactions outflows • Backed by Level 1 assets or with central banks 0% • Backed by Level 2A assets 15% • Secured funding transactions with domestic sovereign, PSEs or MDBs that are not backed by Level 1 or 2A assets. PSEs that receive this treatment are limited to those that have a risk weight of 20% or lower. 25% • Backed by Sharī`ah -compliant residential mortgage- backed securities (RMBS) eligible for inclusion in Level 2B • Backed by other Level 2B assets 50% • All others 100%
FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Categories of Cash Outflow (4) Sharī`ah -compliant hedging (Tahawwut) instruments:100% run-off factor; Undrawn credit and liquidity facilities to retail and small business customers: 5% run-off Requirements factor; Additional Undrawn financing facilities to nonfinancial corporates as well as sovereigns, central banks, PSEs and MDBs, : 10% runoff factor for credit and 30% run-off factor for liquidity; Other contractual obligations extended to financial institutions/IIFS, which are assigned a 100% run-off factor. Trade finance-related obligations – Revocable: a 0% run-off factor. If irrevocable, a 5% or lower run-off factor is applicable.
FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FACILITATING THE IMPLEMENTATION OF THE IFSB STANDARDS FIS WORKSHOP SERIES FIS WORKSHOP SERIES Categories of Cash Outflow (5) a. Retail and small business deposits: 20% CMT-based Deposits If the remaining term of b. Non-financial corporates (other than small businesses) and the Reverse Murābahah sovereigns, central banks, MDBs and PSEs when the deposits does not exceed 30 days, are not held for operational purposes: 40% unless entirely covered then the following run-off by an effective Sharī`ah -compliant deposit insurance scheme or factors should be applied guarantee, in which case the run-off factor is 20% to the balance of the Reverse Murābahah payable: c. Financial institutions, fiduciaries, beneficiaries, SPVs and affiliated entities, when the deposits are not held for operational purposes: 100%
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