NZ Trip - Day 5 - Taupo

Today is more of a travel day, journeying down from Rotorua to Wellington, the southern tip of North Island, through Taupo. Taupo is a dormant super volcano that is bigger than Yellowstone in the US, last erupting 80k years' ago. Now, rain water collected in the caldera has turned it into the largest lake in NZ. There are apparently an earthquake once every 15 mins somewhere in NZ!

The original plan was to viit Taupo, have lunch there before proceeding to Wellington. However, the outlook for the day was complicated by the fact that NZ is hosting the Iron-man challenge for the first time, with 80k athletes descending on Taupo as the host city this weekend. Major roads leading into Taupo had been closed as a result for the cycling leg of the challenge. So we decided to take a detour as recommended by Google maps.

We travelled through the changing terrain that was as beautiful as the other days, with us largely content with just admiring the landscape as we drove. We didnt lose too much time on the detour, so we stopped as planned at Huka Falls to admire the force of nature, raising a loud scream as it plunged a few meters down. The rapids just prior to the falls were even more impressive. After the quick photo stop, we proceeded to Taupo. We realised that the original planned lunch stop has been cordoned off for the Iron-man event, so we opted to stop for some sandwiches and bakery items for lunch. "Baked" turned out to be a very good choice, with us being treated to some yummy Kumara burger, macaroons and falafel wraps. 

This is where I noticed a very interesting pattern, that all the public toilets (or private) had a lovely saying or two, reminding people to be friendly and nice. I would subsequently see this everywhere I go, maybe one of the reasons why the Kiwis are one of the most friendly people on earth.
 

After a filling lunch, I wanted to fill up petrol but there was no way to get to the petrol station,  hence we decided to proceed directly to Wellington. However, getting out of Taupo proved to be very challenging, with most of the roads being closed. Google maps didn't have time to refresh the new information I guess. This led to us circling Taupo for almost 30 mins trying to figure out the exit. There was a big sense of relief when we finally made it to the state highway!

A few kilometers later, we were treated to a fascinating wonderful view of Lake Taupo, a glory too much to cover in a camera. The blue waters stretching from horizon to horizon was the caldera of the super valcano, so I involuntarily shuddered a bit thinking how big the actual volcano was, and how shallow the magma below our feet was!

The drive from Lake Taupo to Wellington through the Desert Road was one of the best drives I have had in my life, with the landscape changing dramatically. Traversing multiple sharp S curves over the mountains, we got a picturesque view of the snow capped Mt Tongariro, which dominates the show for about 30 km. 

Then just as we pass on to the other side, it feels like we have gone onto the Australian outback, with the desert landscape making us gape in awe. It is a completely deserted stretch, with no gas pumps or any sign of human life. However,  it only adds to the allure of this barren landscape with shrubs and a mesmerising reddish-yellow hue that felt totally out of this world! This is also a very straight long road with hardly any traffic, probably the longest straight road in NZ, allowing me to zoom past at 140-150kmph without a worry. But I actually didn't want to speed as the view was too good and I wanted it to last as long as possible. I was begging my wife to take more pictures almost every km. Instead of getting frustrated, she was surprisingly obliging the request! I understood that everyone's heart melts at the sheer beauty of nature. A particular stretch that has up and down roads just left my mouth gaping. The pictures will always be etched in my mind. 

After the desert road stretch, we came to Foxton, a small town with some cafes and gas. We took a halt there and I wanted to check my tyre pressures as my car was drifting left but was told that some inebriated person cut off the air pressure tubes a couple of weeks' back and they were still waiting for the fix! While vandalism was somewhat surprising in the mild natured Kiwis, what was more surprising is being directly offered "coke" when I stopped for air pressure check at the next gas station. With my love of coke, I almost said ok before I realised what he meant!

After the slight worry with my car, we were again on our way, past beautiful and changing horizons. I am already running out of adjectives on this tour 😀. After Palmerston North, you could already feel you are entering the Capital Territory, as the roads become so smooth and cruising speed limits increase. Just when I thought this will become a smooth drive, the landscape changed again without warning,  from bright scorching sun to a thick fog rolling down the green hills obscuring the highway. It dawned on me that Wellington is right on the cost with the strong Pacific winds being funneled through mountains on either side making it very humid and windy place. Again it made for a beautiful drive into the city.

Catching up with my friend Madhu and his family after about 15 years was very exciting and heartwarming. We reached his house around 9pm and caught up on various topics while having a nice dinner, and I almost didn't want to sleep. He also gave me an amazing book on ancient Tamils that had me immersed late into the night. 

Today was an unforgettable drive through North Island that I would strongly recommend everyone to do. I would have missed it as my initial plan was to fly from Rotorua to Christchurch, but for my friend being in Wellington. 

NZ Trip - Day 4 - Rotorua Redwoods

After a fiery start, now onto the woods. My family wanted this to be a more relaxed day, so I cut out Tauranga from the itinerary so that we can relax in Rotorua instead. This involved a couple of trips to Redwoods,  a 10 min drive from our hotel, an adventure trip in the morning and a relaxed walk at night. 

After a day of rain, bright sunshine greeted us today, and we thought it was 9 when we woke up at 6am. We went off to Redwoods on time to be greeted by friendly staff (an almost superfluous and understated adjective to describe anyone in NZ). We were all hooked up to the safety harness before a nice stroll/ hike through the Redwood forest. Interesting tidbit was that the Redwoods for imported from California, but grows 10x faster due to the fertile volcanic soil. However the flip side is that their barks are more brittle given the rapid speed of growth, leaving it more prone to being destroyed by human touch (oils in our hands). It's both an irony and a pronounced sarcasm of the effect of human beings on nature that the tallest trees in the world just can't stand a human touch! 

Our Redwoods Altitude adventure began with a quick demonstration of how to navigate the ropes with our gear and cross bridges and ziplines. It was fairly simple to understand but still made a couple of mistakes along the way! Crossing the different types of briedges they had specifically built was fun, with 20+ bridges of varying complexity for us to cross. The ziplines were fantastic, feeling the cool wind while we zap across the Redwoods trees, earning the mock ire if we touch some of its leaves. I always ended up turning on my back for some reason, but thoroughly enjoyed it. The real highlight was the last drop off, literally, from 20+ meters high, with a 1 second free fall and 7 seconds in all. Doesn't sound like much but I started with a scream of pain as I held the harness a bit too tightly, but enjoyed my way down. My kids had no such issues and was overjoyed by the experience, probably the most adventurous activity of their short lives so far. 2 hours felt like 2 mins here! For my wife and daughter, this was also a bit of a prelude to their planned skydive later on in Queenstown!

Having dropped off the kids at the hotel, my wife and myself went to the city center to buy some shoes for me (which got torn during my morning adventure). Having got a recommendation, we went to the Torpedo7 store at The Warehouse to get some hiking shoes (which were pretty expensive compared to SG by the way) before we had a mix of sandwiches, Indian and Chinese lunch take aways. While the price was high, the quantity and quality more than made up for it, leaving us with a bursting stomach! 

Afternoon was spent gorging on ice cream from the Lady Jones Ice cream shop across the road with 50+ wonderful flavours to try out. It seemed quite popular from the everpresent crowd and we now know why! We also caught up on some sleep and using the geothermal spa at the hotel, soaking in the sulfur rich hot water at various temperatures. 

Dinner was Italian pasta, from the food lane across the hotel. Needless to say, all food stalls, cafeteria and restaurants were mostly manned by Indians and Chinese staff.. Kinda needs some getting used to, especially given some preconceived notions of interacting with a lot more Kiwis on the tour! 

At sunset at 8.30pm, it was off again to Redwoods for the famed TreeWalk at night. Once the lights came on, we were one of the first to go in with the highly recommended Fast Pass, as the queue was quite long otherwise. It was like stepping into a magical place, with lights illuminating the trees and creating structures like Maori lanterns and native birds. It was a 40 min relaxed stroll through a series of bridges across the Redwood trees, with plenty of photo ops. However, photos can only be limited to either people or the background, not both due to the high contrast in brightness between the two. That's probably the only grief about this experience. The isite information center was smelling of coffee the minute we entered and we tasted a wonderful brew there, alongside grabbing a couple of souvenirs.

We came out to a clear night sky full of stars, and even took a small detour on the way back to immerse in the celestial view by the Rotorua Lake before calling it a day.

Day 4 was indeed a lazy day before our long drive to Wellington through the supervolcano town of Taupo tomorrow. I am also increasingly excited to catch up with my childhood pal after many years, and talk a lot more about NZ! 

NZ Trip - Day 3 - Rotorua Geothermal Tours

Today is all steamy,  with tours across 3 geo thermal estates in the plan. After a nice hotel breakfast on a rainy morning, we ventured on a 30 mins drive to Wai-o-Tapu, the geothermal wonderland. It was a beautiful drive laced with tall fir trees on either side of the Thermal Explorer highway. I was amazed that even the trucks go at the same speed (100kmph) as the other vehicles, so that other traffic is not delayed as most of the lanes are one way each side, with hardly any passing opportunities for several km. There are nice passing lanes in some stretches so I slowly figured out how to use them effectively as the day progressed. A few times I was overly eager and tried to pass during stretches of broken white lines but had to abort due to oncoming traffic. A couple were heart in mouth moments, as I realised that the car doesn't want to lose speed that quickly when moving at 100kmph in the rain. 

We reached Wai-o-Tapu just in time for the Lady Knox geyser presentation. People were standing in coats and umbrellas awaiting the 10.15am geyser spurt. An eager Indian family moved to a prime spot just a couple of minutes before, obstructing the views of others behind, drawing moans and disappointed muttering. They withdrew quickly, but this showed how the Kiwis express disappointment - by muttering almost under their breath! The politeness on this part of the world is shocking! Our doubts on how the geyser spewed daily at the same time were dispelled soon enough, when the presenter mentioned that the geyser spews naturally once every 24-48 hours and that they proceeded to add some silica stimulant to get it going on time! It barely lasted a minute, so it was a bit of a damp squib start to the day!

We then went into the Wai-o-Tapu park, which felt like an environment literally straight out of this world! The blend of yellow and red and white caused by the sulphur compounds made up the majority of the landscape. The active geothermal wonderland definitely lived upto its name. From collapsed craters to the bubbling mud pools to the terraces formed by the solidification, we walked our way past in wonder and awe. A strong smell of sulphur, arsenic, gold and silver mixed in those volcanic emissions, and the fog created by the biggest hot water pool in the southern hemisphere (Champagne pool) - There are no words to describe the smell and feeling in that environment. The park itself is made up of 3 walks offering glorious views of the geothermal activities going on in the caldera. The fertile laandscape surrounding the caldera creates a beautiful contrast that speaks about the creative power of volcanic eruptions. Wai-o-Tapu definitely left us with a lasting impression, unlike anything we have ever seen!

We had lunch at a quaint cafe admiring the landscape one last time before riding back to our next stop - Whakerewarewa Maori village. This guided tour offered us an opportunity to get up and close to the Maori culture and way of living. The Maori guide was so passionate and proud of their culture and it showed through every step of the way.  The tour was 1.5 hours, which took us through how the Maoris live their daily lives, cook, bathe, their beliefs, their culture and their tradition. We were treated to a freshly steamed corn from their hot water pool, which was wonderful, probably the freshest and softest corn I have ever tasted. The Maori life is intertwined with nature which provides everything for them. Their focus on sustainability,  care and nurture of nature is second to none. 

More importantly, the tour helped us understand the unique history of New Zealand - the win-win collaboration established between the British and the Maori tribes early on, in part due to the uncanny similarities between Maori beliefs and Christian Roman Catholic religion and rituals. The way Maori have established a permanent home within the geo thermal confines, the only people in the world to do so, harnessing the power of hot water, nearby cold stream, separating the poisonous sulphur rich water from the beneficial geyser waters, was truly a wonderful insight into the human desire to persevere in one of the harshest natural environment. The way they moved on from a devastating volcanic eruption wiping out hundreds of their tribe to call a new place home, and revive their tradition of the females guiding travellers speaks of their resilience. The transition from the warring tribes to uniting for a common cause to survive the colonisation invokes a sense of unity in the face of adversity. 

Making up 17% of the New Zealand population of about 5.5 million, I feel the Maoris are indeed one of the primary reasons why NZ is the way it is, and very different from the rest of the colonised world. People have embraced diversity from the get go for the mutual benefit of all, there is warmth and kindness and sharing nature in everything people do here, which is truly heart warming. There is sadness when they talk about how their lands were taken and lakes drained to build roads, how the commercial development of Rotorua led to the draining of ground water tables by hotels and businesses leading to loss of most geysers, how the industrial waste contaminated their only source of cold water and marine food. However, they quickly put a positive spin on it, and focus on the way forward and strategic steps they are taking as a community to make their case heard and mistakes addressed. There is genuine care and concern, and no bitterness in the way they reminisce. On the other hand, they give due regard to the early British colonisers who positively influenced them and their lives. In my limited life, I have never come across such a wonderful partnership between two cultures that have focused on the positives to take the whole nation forward as I have seen in NZ. No wonder everyone loves the Kiwis second only to their own nation. If only the whole world followed the Kiwi way, it would be a much much better place to be! 

After a brief sojourn back at the hotel, we went to the third geothermal area of Te Puia for a Geyser by the Night guided tour. I felt that this organisation is run by more westernised Maoris, using a site whose native inhabitants have since emigrated, with guides who struggle a bit to recollect their Maori deities and traditions. But their passion to raise awareness of Maori culture through tourism, developing the Maori arts and culture through a formal institute and eagerness to keep the tradition going shown through in the interactions.  I could completely empathise given I am a proud Indian expat myself. The tour itself offered another glimpse into the geothermal environment in a completely different light, literally! It was raining and bitterly cold at night, with geysers and mud pools illuminated by light, making the magic come to light. After a refrehment of a freshly steamed pudding with cream (out of the hot pool ofcourse), We were taken to a platform that had a front row view of the two most active natural geysers of Te Puia. Unlike the artificially stimulated Lady Knox earlier in the day, the natural build up and eruption of these geysers were a sight to behold, and magnificent to watch live! Cameras feel like the most useless accessories in new zealand, as its almost impossible to capture the natural beauty with anything but our own eyes! Still captured a few images to share with our families, but otherwise it was all about taking it in and committing as much as possible to memory! 

Today gave me a few more insights into the traffic mechanisms in NZ. One was the amazing utility of roundabouts in NZ. I was wondering why they had so many roundabouts especially in towns. Then it stuck me that it's a brilliant engineering tactic to ensure smooth flow of traffic without any infrastructure to be built and maintained (ie traffic lights) and also lessen the need for policemen, placing the responsibility fully on the driver. It's a complete win-win situation in a country like NZ with limited capacity and human resources at a premium! The second was how many cars and trucks were there compared to the population, while there were hardly any 2 wheelers. With huge farms to maintain with very limited human beings, there is a need for more heavy vehicles. I counted 3 motorbikes and 2 police cars in my 3 days so far! However I also realised to take a big caution on right turns - the actual turning point could be way further than you think it is, especially if there is another right turn for the straight moving traffic. I realised it in a scary way as I exited a petrol pump at 11pm and turned right after a while, straight onto oncoming traffic lane! Thankfully the lack of any vehicles at the time meant I could quickly do a U-turn and be back on my way still in one piece, although reinforcing my family's belief that I was out to kill them on this trip! 

Day 3 made us recognise that there are more wow moments in a day in NZ than there have been on entire trips before! 

NZ Trip - Day 2 - Waitomo

Today started off bright and sunny (by NZ standards), so we started ok schedule at 8am to drive to Hamilton for breakfast. The views just got better and better when we travelled out further from Auckland, with the meandering drives having a beautiful backdrop. Detours along expressway and some strange rerouting by Google maps led us into Hamilton later than expected, and we just had enough time to finish a quick McD breakfast before heading to Waitomo.  

McD was the first interaction with a proper Kiwi, and it was very pleasant. My school friend in Wellington had just called in and confirmed what I already suspected, that Auckland had a lot of Indian and Chinese population, and that the customer service improves as we get further down south. McD had a lot more drink options than what we were used to back in SG, which was a pleasant surprise. We choose a wide variety, from hot chocolate to frozen Fanta, but didn't take another instant liking to some of those. But the whipped butter was so rich and fresh, a true testament to the daily dream that is New Zealand. The dairy products are something I am sure we will gorge on in this tour. 

With time against us, we discovered another thing - that Google maps shows the commute time for locals who drive, so as a foreigner getting used to the mountain drives and curvy roads, the commute is often a lot longer than what is shown on the maps. I threw caution to the wind and were going as fast as I dared to, causing the ire of my family members who thought i was on a mission to get them killed. Yet, I didn't make up much time and barely managed to check in in-time for the Waitomo tours trip. But the drive itself through vast farms, herd of cow, horses and sheep was mesmerising on the eyes. A couple of smashed cars along the way was a gentle reminder on the main cause of accidents in New Zealand, the sheer beauty of the landscape dwarfs any other distraction!

Waitomo Glowworm Caves were pretty small, but the guide ensured we got the lowdown on the glow worms that call them home, the only species in New Zealand. The tour included a small boat trip to get the angle from the underground stream. 

We had a relaxed lunch before heading out to the nearby Ruakiri caves, but an incorrect reading of the maps meant we went the opposite way for 15 km before doing an U turn, meaning we missed our appointment by 7 min. Thankfully they rescheduled it to a couple of hours later, and in the meantime kindly suggested we explore the Ruakiri bush walk track. This is an highlight in new zealand that even if you miss one, you have 2-3 alternatives ready to take its place to take your breath away! Ruakiri bush walk was one such thing. It was rated an "easy 30 min track with granite footpaths", which was a running joke for us as it would easily be classified as "hard" in Indian speak. I would say the track would be very difficult for any unfit or 60+ Indian adult. It took us 1.5 hours for a round trip. 

The different shades of leaves and flowers left us spellbound as we walked through the thick folliage winding through the stream below. The highlight was a tunnel viewing platform at the other end and a couple of waterfalls. 

Making our way back to the Ruakiri cave tour, we were taking into the limestone caves 10 stories below ground, which are about 4km long. The darkness of the Caves were jarring, but you quickly get used to it. The different limestone formations were explained to us in detail as we made our way through. These Caves were also considered a Maori sacred place, and I was honoured when the tourists sang an impromptu "Happy Birthday" song for me in a Maori citadel inside. The pitch black room was awesome, where you couldn't see a thing including your own hand. The air vent reaching down 150m below surface was cool to look at, the only source of surface light down there. The temperature is around 14 degrees, so better to have a jacket on, which we realised too late. It also has Glowworm to boot. Anyway, while Waitomo Glowworm Caves is a bigger tourist attraction,  I felt that this cave was a lot more worth the time and money! 

From there, it was a 2.5 hours drive back to Rotorua. Again, Google maps played havoc choosing some lesser roads because it saves 5 mins as per its calculations. But for tourists, I would strongly recommend sticking to the main State Highway roads, unless you want to explore lesser treaden paths. Anyway, the detour was worth lovely lavender farms and lots of flowers adorning beautiful houses, although it took 30 mins longer, so no regrets!

We checked into the Novotel hotel right by the lake and walked along the line of nearby shops for a nice Indian Vegetarian dinner at BailwalG restaurant. The quantity was too much though, but that take away settles a meal tomorrow. 

Day 2 really got us going into admiring the natural beauty of NZ while showing us more gotchas. Looking forward to Day 3 with a lot less travel.

NZ Trip - Day 1 - Auckland

Day 1 was all about travel and getting settled into the ways of working in the new world. Well, we accomplished half of it today. Catching a bus to the airport right from our door step was nice, but was cutting it a bit close as it stopped at all possible road signals. However, the automated checking for Qantas meant that it was all completed with plenty of time in hand. Having done the Finnair for the Singapore-Sydney leg and Qantas for Sydney-Auckland, I feel Finnair was way better in terms of aircraft, service and vegetarian food. I am glad the return leg to Singapore is also through Finnair.

It was a special star birthday for me, crossing two oceans and celebrating my birthday across 2 countries! 

Transiting through Sydney with 1.5 hour stopover was a breeze, with plenty of time for browsing through a few shops, although the sniffer dogs touching me with their noses triggered all sorts of paranoai of dogs from my childhood days.. They even had a McD which was nice. Ofcourse my family couldn't resist the comparison with Singapore Changi airport, but I doubt any airport can compete with that!

Sydney airport is right by the Tasman Sea, and the travel leg from Sydney to Auckland was all about admiring the vast expanse of the Pacific Ocean (well, technically Tasman Sea, but we were travelling in a straight line that goes from Sydney to Santiago). I had heard that just looking at the Pacific ocean is said to bring a sense of calm, and the colour of the water almost matches the sky in a beautiful blend of blue. It didn't disappoint on both counts! 

With plenty of time for self reflection and a quick nap, given the 1 hour flight delay, we caught first sight of NZ through a series of what appeared to be volcanic mountains dotting the sea, leading into Auckland airport. We caught a glimpse of the undulating surface that NZ is famous for. With preservation filled traveller declaration, clearing immigration and biodiversity security checks were a breeze, rendering all my prior self scrutiny meaningless. Renting a car, though, was a much bigger hassle than I had expected. First I was surprised when a Chinese guy picked up the phone for the car rental company and I could barely make out what he was saying. We had to figure out the pick up spot and wait for a good amount of time before being chauffeured to an offside pickup spot, which looked more like a junkyard! The guy went through the rental procedure in like a minute, leaving me to do the head scratching and heavy lifting. The first car he offered had low tire pressure which he couldn't resolve with air pumps, so we had to take another car, which didn't have GPS navigation that was requested, the fuel was almost empty, the charger ports couldn't be opened, meaning my USB chargers were useless. It also didn't have auto brake that i had become so reliant on.  I just hopes it takes us safely through these 15 days!

The hotel was in a nice location 10 mins from the city center, but we had another surprise when we checked in, the plug points in NZ were very different to what we have seen before, even the adapters we had didn't have the right plug. The Chinese receptionist didn't even know what an adaptor was. Thankfully the convenience store right next door had these items. And an Indian manning it to boot, so we could stock up on some essential items. 

After a quick break, we were off to see the Sky Tower, the 60th floor observation deck offering lovely views of Auckland and a nice glimpse of the sunset at 8.30pm, the first time in my life we have witnessed a late sunset. There was a Saravana Bhavan right opposite where we had a sumptuous dinner, although the bill came as a big shock. With a plain dosa costing NZD 15, I wonder how people manage finances in this place! Another nasty surprise awaited as my bank debit card started getting declined. Thankfully I was half expecting it based on earlier experiences and I had a more reliable backup option with Revolut.

Quick drive back to the hotel to crash ended Day 1 with a lot more surprises than I had expected. Hope Day 2 dawns better!

Back to the Basics - Lessons from the Current Market Turmoil

 Back to the Basics

With banks collapsing one after another, it is reminiscent of 2008 when the last major financial crisis hit us. For some, the recent bank runs might be a shock while others might shrug it off as “history repeats itself”. But the truth, like with most things, is somewhere in between. So, its time to look back into the basics to find out what went wrong and what can we do differently? I have tried to explain it in simple terms below:

Cash is King

In personal finance, people are always reminded to keep emergency cash (6-12 months) before venturing out into investments. So, why are financial institutions, and more broadly every company, not mandated to do so? While there are complex rules for financial institutions to determine how much cash to set aside (be it Risk Weighted Assets or High-Quality Liquid Assets), maybe it’s time to rethink “Idle cash is waste of money” adage more broadly and see what is required realistically? Should we mandate every company comply with Liquidity ratios (Liquidity Coverage Ratio, Net Stable Funding Ratio) so that they have enough cash to pay off their liabilities within one year?

Liquidity > Assets

Net Worth = Total Assets – Total Liabilities. Herein lies the issue as wealth is often defined by assets and liquidity does not feature in this equation! As this article eloquently puts it while analyzing why businesses fail, “..lack of capital will destroy your business over time, lack of liquidity will destroy it in a heartbeat..”

After 2008, even as focus slowly shifted from Capital to Liquidity for regulators, companies continued to take on clients with high/ ultra-high net worth without deeply evaluating their liquidity position, often cutting corners or turning a blind eye when they requested extended payment timelines or a higher margin call, which are typical liquidity red flags. So, should the equation that needs to be evaluated during client onboarding really be Real Worth = Total Liquid Assets – Total Current Liabilities or based on the Liquidity Coverage Ratio (LCR)?

Banking = Trust

Its not a coincidence that “bank” is a synonym for “trust”. I will bank on you only if I trust you. And it’s a big IF in the financial system as the recent events have shown us. Trust, like credibility, is very fickle. It takes years to build but can very quickly collapse on the back of one misdemeanor. Funnily, people can lose trust/ credibility based on perception rather than facts, which makes it very intriguing and not quantifiable. When people lose trust in a financial institution, it would simply collapse, however long legacy it may have. Lehman Brothers was around for 161 years and went poof within one.

Knee Jerk Reactions

Governments, Regulators and Market Participants like banks are in a symbiotic relationship. Regulators need to broadly align with the government policies and keep market participants happy. Government and Regulators are not silly, they monitor the market participants very closely, and have enough data points to know roughly the strength and issues plaguing each one. But their main role is to maintain the harmony within their ecosystem. However, when things go south, governments are pressured by the common man to take action, who then press the regulators to take action against errant market participants, so it is natural for there to be some knee jerk reactions.

 

Liquidity Component of Counterparty Risk

Lack of liquidity leads to failure of a lot of businesses, not just financial institutions. Going forward, it would be more prudent for the regulators to formally embed Liquidity Risk into Counterparty Risk ratings so that the common man can get factual information about the liquidity risk profile of a firm, rather than relying on misinformation and media coverage in order to from a perception of liquidity risk leading to bank runs and failure of financial institutions.

 

Technology View

As we move into the next phase of tightening regulations, it is important for organizations to better understand the holistic picture of their company as well as those of their clients. As a technologist, I seek to understand where the challenges are and what can be done to enable the business.  

 

Challenges

Compliance, Risk and Reporting are seen as a cost and a chore in most organizations. This cost-center mindset needs to change as the impact of not doing this right is life-or-death for the firm. These functions, in turn, should position themselves as business enablers, rather than policemen. This is easier said than done, as large organizations are often complex and no single person knows everything. This is where technology can help to de-mystify the landscape, consolidate the metrics, and highlight discrepancies.

The “cost” perception also leads to most firms using off-the-shelf vendor solutions for these areas to minimize operational costs. The vendor solutions are typically aligned to regulatory mandates as interpreted by the vendor. These solutions cater for Financial, Capital or Liquidity regulations, but do not offer a read-across and are not flexible enough to cater for every client’s individual needs. While they may offer some great benefits, they should not be relied upon as a one-stop-shop for all internal & external stakeholders. Often, the cost of change from one vendor to another is prohibitive, so organizations that are heavily reliant on specific vendor solutions tend to get stuck after a while.

Internal application landscape in major financial institutions is often complex, with legacy applications, disparate systems and convoluted data flows making it difficult to form a consolidated view across different metrics. Data duplication and multiple points of adjustments make it difficult to assess accuracy. Large organizations typically operate in silos with domain specific SMEs being non-fungible and therefore being unaware/ unable to assess impact on other functional areas. Businesses grapple with semi-automated solutions and are overwhelmed with operational priorities. Regulators have been moving towards element-based reporting (e.g., XBRL standard), but not at a consistent pace across the globe.

 

Solution Approach

Loosely connected architecture through APIs or micro-services would offer the most flexibility and reduced cost of change. This could be a great way to connect internal applications that produce different metrics as well as externally to clients, regulators and vendor solutions. Legacy applications/ services can be re-designed in a cost-effective manner to offer service endpoints. This approach also abstracts underlying complexity and allows flexibility of the technology stack being used for each application.

Liquidity solutions should be designed for message/ event-based processing, rather than batch processing, to improve turnaround times for crisis situations. For example, each cashflow or adjustment should be separately propagated through the application components/ calculation layers, rather than re-processing the entire set of cashflows as a batch. Each liquidity risk event could potentially then trigger a corresponding counterparty risk re-assessment based on appropriate factors, which could be tuned through a neural network.

An utopian concept would be to use Blockchain to encapsulate a single version of every transaction front-to-back, with each function appending details and calculated metrics as it traverses through the trade lifecycle. This would avoid data duplication and reconciliations. However, this approach would probably only be meaningful to new digital banks that start from scratch as it is not viable to re-engineer legacy applications this way.

Data virtualization tools can be used to provide an overarching management dashboard with actionable insights from various metrics to the business. Vendor solutions can be great reporting tools that offer last-mile connectivity to the regulators (e.g., submission mechanisms, final adjustments, review/ signoff workflows).

Way Forward

While everyone has an opinion about current events, its important to learn the lessons from the past and present to apply to the future. Stay close to your clients and investors, understand their needs, act on their concerns, be prompt and clear in your communication and most importantly, emphasize the role of Liquidity in making or breaking companies!

 

அ...ஆஹா

அன்பின் அலையிலே ஆடல்

ஆடலின் ஆழத்திலே இன்பம்

இன்பத்தின் இதழிலே ஈரம்

ஈரத்தின் ஈறிலே உண்மை

உண்மையின் உருகலிலே ஊமை

ஊமையின் ஊக்கத்திலே எண்ணம்

எண்ணத்தின் எதிரொலியிலே ஏக்கம்

ஏக்கத்தின் ஏயலே ஐயம்

ஐயத்தின் ஐம்புறத்திலே ஒளி

ஒளியின் ஒய்யாரத்திலே ஓவியம்

ஓவியத்தின் ஓதுதலிலே ஔவியம்

ஔவியத்தின் ஔடத்திலே அன்பு!