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Take Four Steps to Strategic Intraday Liquidity Monitoring

Richard Chapman | Thursday, December 17, 2015

According to the Basel Committee on Banking Supervision (BCBS), banks have just over a year to put in place intraday liquidity monitoring tools under the regulatory guidelines of BCBS 248. In reality, some national regulators have yet to announce a firm deadline for compliance, while others have already introduced reporting requirements. But varying timelines aside, there’s no escaping the fact that intraday liquidity monitoring will soon become mandatory for all and place significant demands on banking operations.

As an operational challenge, it’s helpful to view BCBS 248 in two ways – as not only a regulatory reporting deliverable but also a strategic opportunity. With the right monitoring tools, you will increase your visibility of positions, inflows and outflows, allowing you to improve liquidity management, maximize positive interest on surpluses and minimize interest charges on shortfalls.

By transferring positive balances on nostro accounts that are beyond defined limits, you can also better manage counterparty risk. You could even be in a position to provide early payments, for improved customer satisfaction, charge for providing liquidity or – by demonstrating sound intraday liquidity management practices to regulators – reduce your liquidity buffer.

The question is how to bring about these benefits. As part of a strategic approach to intraday liquidity monitoring, you’ll need to not only establish your current liquidity position at any time of day but also understand its composition. To identify where payments should be held or balances swept, you must first be able to validate whether expected payments have been received or sent, or check for any unexpected activity on the account. Armed with this knowledge, you can adjust existing projections to take into account unexpected activity and confirmed payments. This provides a far more accurate projection of positions on which to base decisions about the accounts. With new confidence in your positions, you can then apply predefined limits to accounts and automate sweeping between them for optimized funding. Alerts can also be set to warn key stakeholders of looming limit breaches and potential risks or opportunities. In some cases, though, decision making will fall outside the bounds of automated workflow and require manual intervention. These will be the times that you need to respond most urgently to liquidity surpluses or shortages, whether by holding outbound payments until additional funds have been received, or expediting payments to reduce positive positions.

While intraday liquidity management at the account level can offer significant value to an organization, you will also need aggregated information. This could involve consolidating data across regions, departments, currencies, correspondents, clients or even asset class to give a broader indication of risk and opportunity.

All of these considerable requirements translate into four key challenges that intraday liquidity management tools must manage.

  1. Integration
    An intraday liquidity management solution needs to be able to integrate data from multiple sources of liquidity. It also needs the flexibility to support data from different systems, in various formats and at irregular frequencies. Some but not all data will be available in real time.

  2. Processing
    Data will often need to be enriched and normalized to add references, static information, security details and so forth. Transactions might be received more than once for the same cash event so duplicate checking is essential. A matching engine will be required to reconcile projections against external confirmations and statements. As transactions enter the system, positions must be automatically revised.

  3. Presentation
    Once processed, data has to be presented for a range of reporting purposes. So your solutions will need to provide flexible data views, including dashboards and key performance indicators that are relevant to particular users. Front-office teams and cash managers, for example, will be interested in liquidity dashboards that present global positions by currency. Operations teams, on the other hand, will need access to granular data to see the status of confirmations and mismatches.

  4. Action
    On the presentation of data, the system must allow users to take – or automate – action when issues occur, limits are breached or business rules or thresholds are reached. An intraday liquidity management solution must also be able to integrate with and provide outputs to other systems. While not a payment system per se, it should be able to interact with payment systems by applying rules and tagging payments for hold or release. Ultimately, it should provide the data required to meet liquidity reporting requirements, whether reports are created within the system or data is delivered to a strategic liquidity repository.

With powerful, highly automated tools to manage these challenges, you can better manage risk and costs as well as achieve regulatory compliance. And the good news is that many banks are now taking this kind of strategic approach to BCBS 248, albeit in different ways. Some are building in-house systems or exploiting the capabilities of their existing treasury or payment systems.

But for a truly strategic intraday liquidity management solution, you really need a single platform to manage the four key steps of integration, processing, presentation and action. By sourcing, processing and making data available to different regions and departments through one solution, you’ll be better placed to both meet regulatory requirements and make more competitive use of liquidity for long-term growth.


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