Liquidity Coverage Ratio (LCR) Model Validation
For a large U.S. thrift bank, Prescio independently validated a third party Liquidity Coverage Ratio (LCR) model that was implemented to meet Basel III regulatory guidelines. The validation included assessment of data and model controls, assessment of the data flow and data management processes, review of the treatment of data including classification and processing of assets and liabilities on the General Ledger, consideration of the model environment and operation, and review of the model output and application. During the validation, Prescio independently constructed a challenger LCR model incorporating the LCR rules designated by the Federal Reserve. Prescio analyzed the bank’s assets and liabilities by grouping the General Ledger items by category. Prescio entered the balances of each category into its in-house challenger LCR model producing an estimated LCR. Finally, the Prescio LCR output was compared to the bank LCR output. This project was completed well within the scheduled delivery date of the project.