April 14, 2016


Intraday Liquidity beyond Compliance

Regulatory focus on liquidity has started to move from Capital Ratio and EOD funding positions to very detailed monitoring of financial institutions’ Intraday Liquidity activities.

Monitoring tools for Intraday Liquidity management were released by the Basel III Committee on banking Supervision (BCBS) a year ago. However, this requirement was communicated as early as 2008 subsequent to publication of the BCBS’ Principles for Sound Liquidity Risk Management and Supervision. After almost five years, Basel III has now introduced reporting of LCR (Liquid Asset buffers over a 30 day) and NSFR (over a one year) horizon. As per the reporting requirement, global banks need to report Intraday Liquidity information beginning Jan 1, 2015. The BCBS also mandates that the tools to be implemented include calculation of daily maximum Intraday Liquidity usage, the availability of Intraday Liquidity at the start of the business day and time-specific obligations.

Intraday Liquidity - New Opportunities

There are three commonly known payment activities carried out in large financial institutions.

The first and foremost responsibility for the cash management desk is to ensure that settlement account tasks are adequately funded with the required liquidity and, more importantly, without incurring the risk of breaching any limits, while not leaving any more cash idle than necessary.

The second function is to meet the regulatory requirements which we discussed in the earlier part of the paper, which include, LCR, NFSR and BSBS 248.

The third function is to manage and price liquidity in the bank’s trading activities and services for their corporate and Institutional client. It is very common practice in the payment services for financial institutions to price in the cost for making the payments.

We will be discussing a fourth dimension of Intraday Liquidity management as a new opportunity.

Global Financial Institutions now have their Capital Adequacy Ratios and End of Day Liquidity positions in order. However, very few global banks are leveraging their real time data towards investing surplus liquidity, through effective tracking of their Intraday Liquidity positions. Through the use of proper tools, we can unearth deployable funds while actively managing Intraday Liquidity risk. We can identify the counterparties, bank customers, nostro accounts and underlying systems involved and arrive at a true picture of Intraday Liquidity.

It is very important to highlight the date, time, and nature of the liquidity flow and intraday credit which might be on the higher side. Also, we need to take in to account business commitments and the corresponding time of the flow. Based on the above data points, arriving at the key positions frequently with time stamping greatly improves the accuracy of intraday liquidity forecasting.