What Regulators Want: Hidden Expectations Behind Liquidity Reporting
In today’s US financial landscape, regulators are easing frameworks like Basel III endgame. Yet banks must prioritize high-fidelity, real-time liquidity reporting and integrated data platforms. Strong risk monitoring and capital planning—backed by tech‑driven resilience—are essential to thrive amid uncertainty and evolving Basel IV expectations.
In a previous article I touted the end of the financial regulatory super cycle of aggressive rulemaking and enforcement, which has given way to the current ebb of oversight. The majority-led US House Committee on Financial Services delivered a clear message on March 31: “The SEC should withdraw the following final and proposed rules...” That seems to be playing out as long gestating frameworks like Basel III endgame have been, in effect, delayed for further deliberations, not only in the US but also in Europe.
The Federal Reserve (Fed) has indicated it will reevaluate capital rules including Basel III endgame liquidity requirements, stress capital buffer requirement, and improved stress testing transparency, as well as crypto guidance. While we are clearly in a regulatory ebb, this doesn’t mean risk and compliance teams can phone in cloudy reporting nor relax liquidity management. Investment banks and other sell-side firms are expected to maintain effective monitoring of liquidity and funding risks. Blind spots are killers, leading to a false sense of well-being.
Let’s analyze financial regulatory trends and examine why banks need integrated, high-fidelity data platforms to respond effectively to regulators’ hidden expectations for superlative, data-driven liquidity risk management and reporting.
Financial regulatory trends 2025 As the iterative Basel III process iterates again, large US banks are sitting on an average CET1 ratio of ~13 percent, far exceeding the minimum required ratio of 4.5 percent. Banks recognize the softened regulatory environment expected over the next 3.5 years, and are pressing to finalize a de-clawed Basel III that, rather than boosting capital requirements by 16 percent, would not increase them at all. According to the Bank of International Settlements tracker, most of Europe has adopted Basel III standards, including 89 percent (as of May 2025) intraday liquidity management rules in force and 100 percent for countercyclical capital buffers, Liquidity Coverage Ratio (LCR), and Net Stable Funding Ratio (NFSR).i
Basel III and Basel IV are designed to reduce banks’ reliance on their internal models to calculate risk-weighted assets (RWA).ii The existing qualitative disclosures would be converted to regulatory reporting forms. Banks currently adhere to two requirements for calculating their RWA—the standardized approach and the advanced approach. Basel III replaces this with an expanded risk-based approach.iii Treasury leaders should move to optimize RWAs through strategic planning, stress scenarios, and effective risk management.
US regulators are also accepting comments on a proposal to set the enhanced Supplemental Leverage Ratio (SLR) so that it is based on a banks’ overall systemic risk “instead of incentivizing higher-risk, higher-return activities.”iv This adjustment should encourage banking organizations to engage more readily in low-risk, low-return activities, which is intended to support the smooth functioning of the U.S. Treasury market.
Internal liquidity stress testing
Record high capital ratios do not make capital stress testing and scenario planning less critical. However, regulatory reporting, internal risk assessments, and stress scenarios must align with current market conditions and the bank's risk profile, the calculation of which requires data integrity and clear lineage, as well as systems for real-time or near-time monitoring of risk metrics and capital ratios. Only then can a firm develop a viable capital plan that integrates with the firm’s strategic planning and risk appetite. The Federal Reserve Board is said to be initiating rules “to undermine the stress tests” as part of the deregulation trend.v Once again, this doesn’t cancel the need for internal liquidity stress testing - or real-time bank liquidity reporting.
Numerous regulatory reports still have to be filed on a daily, weekly, and monthly basis around transactions, exposures, leverage, etc. In many ways, it puts a premium on banks’ liquidity data analysis and their overall state of data transformation. Oversight will no longer take the form of humans onsite at banks. It will take the form of data-driven, automated compliance reporting and risk disclosures, made possible by consolidated reporting workflows.
Sound liquidity management builds risk resilience
In this age of perpetual disruptions from quaking trade policy, market volatility, and geopolitical strife, resilience is gold. Superlative technology-forward liquidity and capital management are gold. While capital markets transactions, cash ratios on balance sheets, and deposits are currently at all-time highs, banks still face significant challenges with their existing disparate systems assembled through acquisitions or developed by individual business units, which lacked standardization of data and are susceptible to expensive errors.
Risk management becomes problematic when the firm generates misleading Internal Liquidity Adequacy Assessment Process, NFSR, and LCR risk disclosures. Nobody can afford to increase the probability of mispriced derivatives, incorrect margin calculations, and undercut transparency efforts.
"Regulation, no matter how fit for purpose, can only take you so far. The first and most important source of resilience comes from banks' own risk management practices and governance arrangements. And regulation must be complemented with strong and effective forward-looking supervision.” -- Erik Thedéen, Chair of the Basel Committee on Banking Supervision, July 1, 2025."
Real-time monitoring of risk metrics and capital ratios In LCR, banks must be able to regularly track and manage the coverage ratio of 3 levels of HQLAs with frequent updates using real-time or near-time data.
As outlined in Investopedia’s article, Liquidity Coverage Ratio: Definition and How to Calculate, banks should also be able to:
- Assess each asset's quality tier and apply the required discounts
- Project realistic cash outflows based on historical data and stress scenarios
- Account for potential changes in collateral values
- Consider the timing of incoming payments and outgoing obligations
- Factor in the behavior of both retail and institutional depositors during stress periodvi
The risk analysts who execute these calculations must trust the data. It cannot be yesterday’s data. It cannot be this morning’s data. It cannot be missing datasets. Liquidity risk and collateral management pros must be able to access the data, and the information must be timely. Having real-time data on HQLAs and other critical assets of a bank's balance sheet is essential for well-timed contingency planning.
Banks are striving to fully connect data pipelines to bring normalized, accurate data from across risk, finance, treasury, and external sources into a centralized, single source-of-truth. They are understandably pressing for improved data quality and data lineage to ensure they are working with consistent, accurate, and trackable investment data. This is completely reliant on CTOs or data science leaders installing the right data plumbing that can ingest auditable datasets with automated data quality rules. See our case study on how a global bank transformed data into a strategic asset.
Future proofing: Basel IV on the horizon
While we are focusing on liquidity risk in this article, the modern digitized financial system calls for a well-integrated risk management framework that considers the interrelation of capital and liquidity risk, market risk, credit risk, operational risk, and interest rate risk. This fact of life is reflected in the Basel IV framework that differs from Basel III in treating the denominator of the capital ratio, especially in credit, market, counterparty, and operational risk.
When speculating on the implications of Basel IV, we look to Canada, one of the first adopters of the regulatory framework. With its introduction, Basel IV has established more complex capital calculations, risk assessments and disclosure requirements, including new standardized approaches, expanded reporting obligations, and heightened data accuracy requirements.vii
The future is arriving rapidly, not only in the shape of regulatory frameworks but also in the form of new market regimes and business models that call for new approaches to risk management. Further, with crypto-friendly policymakers poised to pass frameworks for digital assets, banks will need to prepare for additional risk management complexities that come with blockchain products integrating with the mainstream financial markets.viii
As I detailed in my earlier article How Sell-Side Institutions Can Monetize the Market Turn, by identifying the root causes of inefficiency and investing in long-term digital strategies rather than reactive fixes, banks can position themselves for profitability in early up-cycles, often the most lucrative periods.
High‑fidelity data is the cornerstone of real‑time liquidity monitoring
Transparent live access to data is critical for accurate risk monitoring, including liquidity risk. The World Cloud Report for Financial Services 2025 revealed that banks and insurers named two of their three top concerns in handling financial data to be legacy systems impeding siloed data integration (71%) and lackluster data quality, including incorrect and missing information (69%).ix With reduced compliance burdens, banks should seize the window to address longstanding data challenges, whether it be fragmented systems, inconsistent reporting, or operational inefficiency. They can subsequently capitalize on new revenue-generating opportunities.
Key takeaways
Q: Does reduced enforcement mean banks can ease up?
A: No—regulatory easing requires stronger internal liquidity controls and automated risk reporting.
Q: Why does real-time data matter now?
A: Regulators expect instant insights into LCR, HQLAs, and capital ratios for stress scenarios.
Q: How should banks prepare for Basel IV?
A: By integrating capital, credit, market, and liquidity risk data into a unified framework with full lineage.
Q: What’s the value of internal stress testing?
A: It ensures proactive capital planning, aligning board strategy with market dynamics and governance.
Q: How can tech support compliance?
A: Centralized data pipelines enable automated, high‑quality reporting and uncover growth opportunities.
Sources
i. Bank of International Settlements, RCAP on timeliness: Basel III implementation dashboard https://www.bis.org/bcbs/implementation/rcap_reports.htm
ii. Atlantic Council. Basel III endgame: The specter of global regulatory fragmentation, May 13, 2025. https://www.atlanticcouncil.org/blogs/econographics/basel-iii-endgame-the-specter-of-global-regulatory-fragmentation/
iii. US Congress. Bank Capital Requirements: Basel III Endgame. https://www.congress.gov/crs-product/R47855
iv. JDSupra, July 10, 2025, US Banking Regulators Propose Changes to the Enhanced Supplementary Leverage Ratio for US GSIBs https://www.jdsupra.com/legalnews/us-banking-regulators-propose-changes-9401720/
v. Letter from ranking Democrats. February 10, 2025. https://democrats-financialservices.house.gov/uploadedfiles/2025.02.10_ltr_.powell_st.pdf
vi. Investopedia, Liquidity Coverage Ratio: Definition and How To Calculate. https://www.investopedia.com/terms/l/liquidity-coverage-ratio.asp
vii. NASDAQ, Basel IV in Canada: How Banks Are Adapting to Reforms. https://www.nasdaq.com/articles/fintech/regulatory-news/basel-4-canada-implementation
viii. CNBC, July 17, 2025. https://www.cnbc.com/2025/07/15/trump-crypto-bills-fails-key-hurdle-congress.html
ix. Capgemini, World Cloud Report – Financial Services 2025. https://www.capgemini.com/insights/research-library/world-cloud-report/
Authored By
Ted O’Connor
Ted is a Senior Vice President focused on Business Development at Arcesium. In this role, Ted works with leading financial institutions in the capital markets to optimize data, technology, and operational needs.
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