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Deutsche Bank paper explores benefits of real-time cash liquidity reporting

Pushing ahead with intra-day or real-time liquidity reporting, to give banks the ability to regularly measure and track their liquidity flows over the course of a business day, was seen as a priority task in the wake of the financial crisis

The concept of reporting cash liquidity positions on an intraday or real-time basis is simple enough. To summarise briefly: banks should be aware of their liquidity positions during the course of the business day - and not simply at the beginning and the end.

The Basel Committee on Banking Supervision (BCBS) was the main driver for change. In 2013, in its BCBS 248 document, the Committee recommended that intra-day liquidity reporting was made mandatory and it was assumed that its proposals would quickly be enshrined in regulation.

Yet six years on, this reforming zeal appears to have dissipated. While many of the world’s largest banks now undertake intra-day liquidity reporting, the majority of banks in the correspondent banking correspondent arena seem to have simply moved on to other issues.

It’s time to revive the momentum for change, argues the Deutsche Bank white paper 'Real-time cash-balance reporting: No need to wait'. For the past two years, a clear industry standard for intraday liquidity has been available, thanks to the work of the Liquidity Implementation Task Force - a group of 25 large clearing and custodian banks and global brokers - with the support of SWIFT.

It’s a relatively small issue compared to others such as the migration to ISO 20022, but still an important one that can now be fixed, commented Christian Westerhaus, head of Cash Products, Corporate Bank at Deutsche Bank. With a strong common framework for real-time reporting now established, SWIFT’s global payment innovation (gpi) initiative is providing a high degree of payment transparency.

In addition to the obvious stress-scenario advantages, banks with a clear overview of their intraday cash positions can assess how well they are managing their flows and promptly address any inefficiencies. What’s more, it’s far better that the banking industry should act now of its own volition and not wait for change to be imposed on it.

Although there are still sceptics who are unconvinced that real-time reporting is worthwhile, a Deutsch Bank study included in the white paper indicates clear benefits.

Four different financial institutions were studied, of which two use the extended real-time reporting service while the other two do not. While the two users have a clearly defined daily pattern, the two non-users exhibit more random patterns and regularly waste cash liquidity, are obliged to borrow at additional costs and risk situations in which they could fail to meet payment obligations.

As the white paper notes, the tech revolution now underway will positively impact on real-time reporting. Potential impacts range include enhanced richness of the data reported and streamlining reporting channels to enhancing the analysis of reporting data and even - longer term - redefining the concept of reporting altogether.

The advent of application programming interfaces (APIs) promises to revolutionise transaction confirmation and end of day cash balance reporting, by enabling banks to connect their systems with those of their clients and service providers to create a direct channel of communication.

Equally transformative could be distributed ledger technology (DLT) which, if applied to correspondent banking transactions, could make all reporting data immediately available. Together with artificial intelligence (AI), solutions capable of identifying patterns, spotting outliers and proposing solutions - all faster and more thoroughly than a human - are in the pipeline.

Real-time reporting data can be put to strategic use in guarding against stress situations, ensuring constant control over payment execution and enabling bank treasuries to optimise their daily positions in line with their funding strategies.

Yet most participants in the correspondent banking network still regard real-time reporting as a burden and overlook the efficiencies, the white paper concludes. Investing early, rather than waiting until new standards and new technologies emerge, will prove a shrewd move and the resulting benefits will quickly justify the move long before ISO 20022 migration takes place.


This item appears in the following sections:
Cash & Liquidity Management
Regulation & Tax
Basel II, III, IV

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