Post on 15-Apr-2017
transcript
Welcome!
Mike van de Graaf
General Manager Risk & Performance Measurement
Treasury Corporation of Victoria,
and
Global Association of Risk Professionals
Melbourne Director
13 April 2016
2
The views expressed in the following material are the
author’s and do not necessarily represent the views of
the Global Association of Risk Professionals (GARP),
its Membership or its Management.
3 | © 2014 Global Association of Risk Professionals. All rights reserved.
GARP’s Mission:
4 | © 2014 Global Association of Risk Professionals. All rights reserved.
Governance:
5 | © 2014 Global Association of Risk Professionals. All rights reserved.
Supporting an awareness of Risk through leading education programs
6 | © 2014 Global Association of Risk Professionals. All rights reserved.
GARP’s Global Reach is its USP for Australian Risk Managers
7 | © 2014 Global Association of Risk Professionals. All rights reserved.
GARP’s webcasts allow us to stay in touch with developments around the globe
8 | © 2014 Global Association of Risk Professionals. All rights reserved.
Liquidity Risk is binary: One day it is there, but the next day…
9 | © 2014 Global Association of Risk Professionals. All rights reserved.
…and Fixed Income markets have (had) their own risk events...
10 | © 2014 Global Association of Risk Professionals. All rights reserved.
…and APRA and ASIC also have taken aim at liquidity…
APRA Chairman Wyane Byres at the
AFR Banking & Wealth Summit 2016:
1. Reinforcing Capital Strength
2. Improving Stability of liquidity and
funding profile.
3. Enhancing both public and private
sectors’ readiness for adversity
4. Strengthening the risk culture within
the financial system
ANZ and WBC civil action possible fine
of $60 million
“Traders at banks are alleged to have
realised that by virtue of their size, they
could influence the supply and demand
of bank bills during the five minute
trading window when the swap rate was
set” BBG 5/4
- Note: global fines for LIBOR rigging
are estimated at U$235 billion
Short Term Major Bank Debt from 30%
to 20%
More reliance on foreign debt markets
for ST debt
11 | © 2014 Global Association of Risk Professionals. All rights reserved.
…but is monetary policy driving the biggest liquidity trap of all times?
Dr Draghi “whatever it takes” is
pushing European rates down…
Dr Kuroda is taking 20 years of
Japan’s zero rates into new
territory…
Effect on liquidity:
• Japanese citizens are clamouring for Y10,000 bills and safes (FT)
• Europe is taking large notes out of circulation (“for AMLCTF”…)
• How much will low/negative rates be adding to liquidity pressures?
12 | © 2014 Global Association of Risk Professionals. All rights reserved.
John Hollyer, Principal at The Vanguard Group
• About Vanguard, key numbers:
U$3T – 320f – 20m in 170c – 14k staff
• Global Head of the Risk Management Group
within Vanguard’s Investment Management
Group, based in Valley Forge, PA.
• Portfolio Manager to a number of Vanguard’s
bond and money market funds.
• Mr. Hollyer has over 25 years of investment and
risk management experience, is a Chartered
Financial Analyst, and holds a B.S. in
Economics from the Wharton School at the
University of Pennsylvania
• Mr. Hollyer is also a member of GARP’s Buy
Side Risk Managers Forum
C r e a t i n g a c u l t u r e o f
r i s k a w a r e n e s s ®
Global Association of
Risk Professionals
111 Town Square Place
14th Floor
Jersey City, New Jersey 07310
U.S.A.
+ 1 201.719.7210
2nd Floor
Bengal Wing
9A Devonshire Square
London, EC2M 4YN
U.K.
+ 44 (0) 20 7397 9630
www.garp.org
About GARP | The Global Association of Risk Professionals (GARP) is a not-for-profit global membership organization dedicated to preparing professionals and organizations to make
better informed risk decisions. Membership represents over 150,000 risk management practitioners and researchers from banks, investment management firms, government agencies,
academic institutions, and corporations from more than 195 countries and territories. GARP administers the Financial Risk Manager (FRM®) and the Energy Risk Professional (ERP®)
Exams; certifications recognized by risk professionals worldwide. GARP also helps advance the role of risk management via comprehensive professional education and training for
professionals of all levels. www.garp.org.
13 | © 2014 Global Association of Risk Professionals. All rights reserved.
For internal use only. Not for public distribution.
Liquidity Risk
John Hollyer, CFA
April 2016
2 For internal use only. Not for public distribution.
Defining and Measuring Liquidity
The ongoing evolution of markets and liquidity
Vanguard’s approach to liquidity risk management
Regulatory activity
Agenda
3 For internal use only. Not for public distribution.
Transaction cost – bid/offer spread
Trading volume
Market Impact
Liquidity is hard to measure
4 For internal use only. Not for public distribution.
Market impact – a good measure, harder to calculate
5 For internal use only. Not for public distribution.
1. Post crisis regulatory response
• Capital – more required
• Liquidity – hold more liquid securities
• Activities – proprietary trading prohibitions
2. Normalization of monetary policy
• Stretched valuations 3. New entrants and the evolution of electronic trading
Impact:
• Dealers have made decisions to devote less resources to market making
• Arbitrage tool kits are reduced
• Potentially larger and more rapid price changes
Assessment:
• The financial system is safer but markets are more volatile
• Large, broadly diversified, high quality markets will find a clearing level
• Policy makers are focused on bond market liquidity and mutual funds
Drivers of changes in market liquidity
6 For internal use only. Not for public distribution.
Asset managers within the broader financial system
Bonds represent buy-and-hold investments in a long-term portfolio for many investors
Sources: SIFMA, Barclays, ICI
Sources: International Investment Funds Association and the IMF
7 For internal use only. Not for public distribution.
There is no evidence of a run on bond funds
Source: Morningstar.com
8 For internal use only. Not for public distribution.
Multi-dimensional assessment
How we are prepared
Multi-layered mitigations
Highly liquid core of securities
Routine practices
Exceptional
tools
Make up of client base
Liquidity of holdings
Portfolio construction
Stress tests
9 For internal use only. Not for public distribution.
Fixed income liquidity – stress test results
Source: Vanguard. Daily data from February 1996-Sepember 2015.
0%
2%
4%
6%
8%
10%
12%
1 Day 5 Day Rolling 10 Day Rolling Active CreditFunds HighlyLiquid Assets
Municipal FundsHighly Liquid
Assets
Redemption Stress Test
Worst redemption:
Active Credit and
Municipal funds
% of highly liquid assets
held in Active Credit funds
% of highly liquid assets
held in Municipal funds
% o
f fu
nd a
ssets
10 For internal use only. Not for public distribution.
• Regulatory mandate to identify SIFIs beyond banking and insurance
• Entity designation is not the right approach for asset management
• Redemption risk and misperceptions
• SEC liquidity rule proposal
• Board level liquidity risk management program
• Minimum percentage in holdings that are highly liquid
• Swing pricing available as an option
• Categorization of each holding into 6 “days to liquidate” buckets
Regulators focus on liquidity risk management
11 For internal use only. Not for public distribution.
Top down liquidity metrics are better than bottom up
12 For internal use only. Not for public distribution.
Liquidity emerges when demanded
Next Meeting Update
2 | © 2014 Global Association of Risk Professionals. All rights reserved.
Telstra’s Chief Risk Officer, Kate Hughes, will
take us through Telstra’s approach to embed a
culture of risk awareness across the business.
Tuesday 31 May 2016
NAB, the Academy, 500 Bourke Street
Next Meeting!