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Bank intra-day liquidity issues could cause payment & settlement system failure

SmartStream Technologies, the Transaction Lifecycle Management specialist have published a paper to help banks identify the implications and solutions needed to meet the intraday liquidity regulatory monitors, scheduled for enforcement from January 2015. The paper highlights concerns from an operational and regulatory perspective.

The paper titled ’Intraday Liquidity Management - The time is now’ looks at intraday liquidity requirements, regulations, risk implications, data quality and the need for banks to have a duty of care. It also discusses the pressures on correspondent banks – how network managers will have a role to play in ensuring that correspondent banks provide full reporting coverage. Nick Noble, Product Manager, SmartStream, states: “Correspondent banks will bear the brunt of the changes as few today are able to provide the level of detailed real-time reporting that the monitoring tools call for. To overcome these data challenges banks will need to migrate from cash management solutions focused on settlement to systems that support the new T+0 operational paradigm”.

Darryl Twiggs, Head of Product Management, SmartStream, states: “This paper is the result of forums we have held with those financial institutions who clearly see this as a major concern. Banks that continue to operate without visibility into their exposure will be left behind the curve and won’t understand where their risks are.”

SmartStream’s Intraday Liquidity Management module

Not surprisingly, the authors of the report, SmartStream, have built an Intraday Liquidity Management module for banks within their TLM Cash & Liquidity Management solution. Cash is forecasted, reconciled and consolidated to deliver a single view across all currencies and accounts in real-time, whilst monitoring and reporting on an intraday basis. The module enables banks to:

  • meet the seven reporting requirements set out by the BCBS
  • address the six operational elements under ‘Principles for Sound Liquidity Risk Management and Supervision’
  • capture ‘Point in Time’ liquidity positions down to the second
  • measure KPI’s on a daily, monthly and yearly basis
  • obtain real-time visibility and alerts against credit lines or exposure limits to control settlement, correspondent, market and counterparty risk
  • control payment flows as necessary
  • automatically realign liquidity positions to avoid breaches and mitigate risks
  • develop and refine limits to allow more effective management and control of intraday liquidity and reduction of liquidity buffers
  • integrate global intraday liquidity management operations within the wider cash and liquidity management framework
  • forecast and confirm positions using TLM matching technology.

CTMfile take: We seem to be moving to a two tier banking framework, particularly for correspondent bank: those who fully understand their intra-day liquidity, and those who don’t. Those who don’t will have to delay payments until they are sure they have the liquidity to comply with the new BCBS reporting standards. In bank reviews and selection, it will now be prudent to ask a new question, ‘What understanding do you have of your intra-day liquidity and how will the new BCBS reporting standards impact your payment cut-off times and processing?’

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