If you will think, for a moment, of your bank’s reserve levels as the fuel gauge on a long-haul flight—every dip requires precise recalibration. Holding too little fuel puts operations at risk, while too much drains efficiency and adds unnecessary cost. As the Federal Reserve steers towards quantitative tightening, banks are feeling the pressure to rethink intraday liquidity management.
The Fed has taken a close look at how banks juggle competing liquidity requirements within Fedwire Funds and Fedwire Securities—two critical interbank systems that process over $6.5 trillion daily. Their analysts explain how reserve levels and intraday timing impact banks’ liquidity strategies and the health of the broader financial system.
The report also aligns with the Fed’s policy interests in quantitative tightening (QT), which aims to reduce reserves in the system. By examining the intraday demands on reserves, Fed analysts underscore how reserve levels influence banks’ settlement behaviour, particularly as they respond to lower liquidity under QT.
Timing is everything…
The timing of Fedwire Funds transactions, for example, shifts when reserves decline, as banks hold payments back until later in the day, managing intraday liquidity to meet settlement obligations without incurring excessive costs or risks. In contrast, Fedwire Securities transactions are clustered early in the day and remain less sensitive to the level of reserves.
The Fed reveals the challenges and strategies banks employ to maintain optimal reserve levels amid intraday fluctuations, impacting the timing of payments. They see several implications for banks’ intraday reserve management:
Complex intraday liquidity management: Banks strive to maintain a stable reserve level, a task complicated by intraday liquidity demands. The Fed indicates that banks often delay some payments in Fedwire Funds to await incoming payments, especially when reserves are low, showing a strategic adjustment in transaction timing based on reserve availability.
Need to strategise: Fedwire Funds, used for credit transactions, allows for some delay flexibility. Conversely, Fedwire Securities requires prompt action due to its delivery-versus-payment structure, pushing banks to prioritise liquidity allocation for these early transactions. These differences underline the need for banks to tailor strategies to each system.
Implementing the tools for the job: The study finds a strong correlation between reserve availability and payment timing. When reserves are ample, banks can process payments earlier, whereas during periods of scarcity, such as under quantitative tightening (QT), they tend to delay. The Federal Reserve’s QT policies have led banks to adapt their strategies, often investing in advanced liquidity management tools to cope with reduced reserves.
Demand for Real-Time Data: Real-time data is essential for accurate intraday liquidity management. Banks frequently encounter limitations in data granularity, leading to suboptimal decision-making. This data gap is especially challenging during fluctuations in aggregate reserves, making timely, precise data essential for effective liquidity planning.
Barry Lewis brings 40 years of line operations experience at various tier 1 global investment banks, the last 20 years at MD level. He is now an associate partner at Elixirr, and is a recognised expert across operations risk, intraday liquidity and operations transformation, he says:
“If your institution struggles with inadequate tracking of real-time balances, you will also struggle with accurate liquidity forecasting. A lack of effective tracking systems can result in a foggy understanding of available liquidity, causing difficulties in predicting cash flow needs. This leads to higher costs as banks attempt to correct imbalances and ensure compliance with regulatory requirements.”
A clear opportunity
The Fed recognises a significant advantage in having real-time tools for intraday liquidity management. Banks with these capabilities meet intraday liquidity demands more effectively while sharpening their strategic edge. Here’s how the benefits stack up:
- Managing intraday liquidity: By continuously monitoring and dynamically adjusting liquidity levels throughout the day, a bank can align more precisely with the distinct needs of Fedwire Funds and Fedwire Securities. This adaptability is crucial for minimising liquidity strain as reserves fluctuate.
- Optimising transaction timing: Advanced software can identify and respond to timing patterns, such as the late-day payment clustering often seen in Fedwire Funds. With better timing, banks can streamline cash flow forecasting and avoid unnecessary end-of-day liquidity pressures.
- Automating processes: By automating key tasks—transaction validations, timing adjustments, and cash flow forecasting—banks can significantly reduce the risk of errors, save valuable time, and enhance overall efficiency. This frees up resources for higher-value decision-making.
- Consolidating data for strategic insights: Integrating cash and securities data offers banks a unified view of their liquidity landscape, essential for both immediate liquidity decisions and longer-term strategic planning.
- Supporting compliance and risk management: An optimised liquidity management framework directly supports regulatory compliance and risk management—a growing priority as reserve policies shift. With automated, accurate tracking and reporting, banks can maintain a clear path through evolving regulatory demands.
These enhancements point to a broader transformation in liquidity management, where technology isn’t just a tool, but a strategic lever to improve performance, compliance, and resilience
“Real-time data insights are transformative for liquidity strategy. By analysing payment patterns—like when funds arrive during the day—we can optimise liquidity use, adjust pricing, and even influence behavior to drive profitability. With this level of granularity, we’re not just managing cash flow; we’re actively feeding strategic insights back into the business to create real commercial value.” —Mark Crowhurst, Managing Director, Strategic Risk Partners
This data speaks volumes
Banks that use the Realiti suite from Planixs try to avoid having excessive cash buffers, instead they focus on really accurate cash flow forecasting, real-time monitoring and control as well as advanced data analytics. This approach transforms how banks see and use their data. Clients of Planixs say they can:
“Control payment flows. Realiti has transformed our liquidity management. We’ve reduced trapped liquidity by $300 million, saving us $4 million annually and allowing us to allocate resources more effectively.”
“Significantly reduce our buffer / add ons.”
“Aggressively fend off the regulator.”
– “Use real-time data to shift decision-making from guesswork to data-driven insights, leading to more accurate liquidity management and financial forecasting.”
– “Achieve over £500,000 reductions in annual staffing costs.”
– “See ROI of over 400% over the first year.”
This feedback from our clients speaks volumes. FIs like SIX, National Bank of Canada and Santander are seeing Realiti generate value exceeding $tens of millions each year.
