MORS Software have just published the results of their Annual Liquidity Risk Management Survey,* completed in July 2014. The survey results show that regulatory pressure is the foremost driver for banks to complete their intra-day liquidity risk projects and that most of these are still a work in progress.

Key findings of the survey:

• regulatory compliance ranks first in importance as a motivation for completing implementation of intra-day liquidity risk monitoring, ahead of cost effectiveness and internal steering
• development of intra-day liquidity risk monitoring takes time, and remains a work in progress at the majority of banks
• regulatory pressure is also the primary driver for stress testing

Basel III requirements

The reporting requirements of the Basel III framework for intra-day liquidity monitoring tools enter into force on 1st January 2015, alongside those of the Liquidity Coverage Ratio (LCR). The majority of banks surveyed now rank regulatory compliance as the foremost driver for completion of their intra-day liquidity risk projects, in contrast to previous surveys, which found that business benefits, such as efficient use of liquidity and reduction of related costs ranked higher in importance than regulatory concerns. The regulatory pressure that the survey reveals is consistent with the finding that the majority of banks surveyed had not yet completed their intra-day liquidity risk projects as of the summer of 2014.

“The survey findings illustrate the current situation of banks,” explains Mika Mustakallio, MORS Software CEO. “Achieving regulatory compliance is a top priority, and is becoming increasingly urgent as we approach year-end. However, banks do also recognise and appreciate the business benefits generated by effective intra-day liquidity risk monitoring, such as cost effectiveness and improved internal steering. Once regulatory demands are met, the importance of forecasting and the need to actively manage and steer the metrics will emerge.”

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* The MORS Software 2014 Liquidity Risk Management Survey was conducted between 7 May and 10 July, 2014. Eighty-one banking professionals participated from the UK, Continental Europe, Asia, Africa, the Middle East and Australia. A total of twenty-six countries were represented.

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Basel II and III has always meant that banks would have to charge for intra-day overdrafts sooner rather than later. By January 2015, most banks will know precisely what intra-liquidity requirements corporates are generating, AND what it costs them. Corporates can expect explicit charging for daylight overdrafts by some? many? of their banks in 2015.