How recent crises reveal gaps in banking oversight—and where tech-driven solutions are making the difference
Imagine a vast electric grid, balancing power supply with ever-fluctuating consumer demand. Much like this grid, banks face liquidity management challenges in controlling cash flows driven by digital payments, while addressing cost centers, regulatory demands and fragmented liquidity pools. When demand spikes, outdated systems strain to keep up, risking overloads that can lead to financial shortfalls or bank failures. We are seeing banks adopt real-time data and predictive analytics, a bit like creating a modern smart grid, dynamically adjusting liquidity to match demand and ensuring uninterrupted stability.
The banking turmoil of 2023 exposed critical vulnerabilities across several prominent financial institutions, notably Silicon Valley Bank (SVB), Signature Bank of New York (SBNY), First Republic Bank (FRC), and Credit Suisse (CS). Over a short period, these banks faced severe liquidity challenges that escalated into crises, prompting rescues and shutdowns. The turmoil has spotlighted key areas where regulatory oversight, governance, and liquidity management practices failed to keep pace.
In this article, Planixs liquidity expert Pete McIntyre examines the lessons from 2023 in the context of a newly released report from Mastercard entitled – High speed, high stakes: Navigating liquidity in an era of volatility.
What you will learn
- Key factors behind the 2023 banking failures and what they reveal about liquidity risk
- The role of real-time data and predictive analytics in modernising liquidity management
- How regulatory changes and technological advances are reshaping treasury functions
The 2023 bank failures
In March 2023, the financial sector was shaken by a series of liquidity crises at four significant banks, representing over $1 trillion in assets. While each institution had distinct operational structures, common themes emerged:
- a failure to manage liquidity effectively
- insufficient governance
- outdated risk management practices
SVB and SBNY, for instance, were particularly vulnerable due to their heavy reliance on concentrated customer bases, leading to substantial deposit withdrawals that quickly depleted liquidity buffers. Credit Suisse, meanwhile, had long grappled with governance and compliance issues, and the crisis amplified concerns about its risk culture and capital reserves.
According to the Basel Committee’s report on the 2023 banking turmoil, this series of failures emphasised the need for a redefined approach to liquidity management, with real-time data integration and predictive analytics being critical to anticipate and mitigate liquidity pressures. The report makes it clear that:
“Advances in the digitalisation of finance – including faster payment and settlement services, and on-demand access to banking services through mobile apps – are removing many of the frictions that may have previously slowed down the magnitude of liquidity outflows.” —Report on the 2023 banking turmoil, Basel Committee on Banking Supervision
Real-time liquidity management: Rising complexity and demand
The Mastercard report reiterates the Basel Commitee’s concerns about the growing complexity of liquidity management in a market increasingly dominated by real-time payments (RTP) and digital financial systems. The report identifies three main trends that are reshaping liquidity and risk management for banks:
- Faster payments
- Tighter regulatory oversight
- Fragmented liquidity pools
Global RTP volumes are predicted to surpass 600 billion transactions by 2028. These systems create unpredictable cash flows, necessitating the adoption of real-time liquidity tracking and predictive analytics to provide near-instant assessments of cash flow and liquidity status and to prevent the sudden liquidity pressures that triggered the 2023 turmoil.
Governance and risk management: Foundational lessons
Risk management failures were central to the crises at SVB and SBNY, where weak oversight allowed concentration risks to go unmitigated, amplifying liquidity vulnerabilities. SVB’s model, heavily reliant on venture-capital-backed clients, meant it was susceptible to massive deposit outflows when market sentiment turned. Mastercard further underscores this risk, noting that banks with outdated treasury systems are less equipped to handle unpredictable cash flows that require real-time adjustments.
“Too much liquidity ties up resources that could be otherwise used for investment. Too little liquidity, and the potential consequences are worse — bankruptcy, or the trigger for a global financial meltdown, as in 2008.” —High speed, high stakes: Navigating liquidity in an era of volatility, Mastercard, 2024
A robust governance framework, according to Basel, goes beyond compliance to integrate a proactive risk culture into decision-making processes. This encompasses an understanding of concentration risk, liquidity exposures, and an institution’s ability to adapt to rapid economic shifts. For treasury professionals, this emphasises the importance of an aligned risk culture that actively anticipates and mitigates potential vulnerabilities. Furthermore, Mastercard says that banks must move beyond spreadsheet-based treasury functions advocating for real-time data systems that provide more accurate and frequent liquidity monitoring that can detect early signs of liquidity stress.
Real-time systems, backed by high-frequency data and predictive modeling, enable banks to prepare for potential liquidity challenges before they reach crisis levels. This anticipatory stance is crucial as it enables both banks and regulators to mitigate risks effectively without relying solely on post-crisis intervention.
“Real-time data bridges the gap between theory and practice, providing senior management (and regulators) with deeper insights on the funding structure which fosters greater confidence. It allows them to accurately identify and monitor areas of stability and vulnerabilities, ensuring that the organisation remains in a safe and sound position at all times by putting into effect appropriate early warning indicators.” —Sridhar Aiyangar*, Group Head, Balance Sheet and Liquidity Management, Bank ABC
How fragmented pools challenge banks
Banks are also contending with fragmented liquidity pools spread across multiple accounts, payment systems, and even jurisdictions. This fragmentation complicates liquidity management by reducing operational agility and increasing the likelihood of shortfalls or overfunding.
“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.” —Barry Lewis, Associate Partner, Elixirr
Fragmented pools become even more challenging as RTP volumes grow, requiring banks to hold liquidity reserves in multiple currencies across different platforms. The solution lies in integrated data repositories and automated reporting tools, which can consolidate liquidity data from disparate sources and enable treasury teams to make informed, immediate decisions that prevent crises before they occur.
Interest rate risk in the banking book (IRRBB)
Interest rate risk in the banking book (IRRBB) played a significant role in the 2023 turmoil. Many banks, including SVB, had substantial holdings in long-term securities that lost value as interest rates rose, eroding capital buffers. The Basel Committee’s report recommends a reassessment of IRRBB regulatory treatment to better capture outlier risks associated with rapid interest rate changes.
Mastercard also emphasises the need for advanced analytics to accurately monitor and model these risks. AI-driven predictive models can improve risk management by continuously analysing the impact of interest rate shifts on liquidity and capital positions, enabling banks to make informed, proactive adjustments. Such technology would have been invaluable for banks during the 2023 crisis, providing the foresight needed to hedge against rising rates and avoid forced sell-offs that compounded liquidity stress.
Why regulators are pushing for real-time liquidity reporting
The regulatory environment has been evolving to reflect lessons learned from the 2023 banking failures. The Basel Committee and other regulatory bodies are revisiting liquidity standards under Basel III, with a focus on ensuring banks maintain adequate buffers for real-time liquidity demands. Current regulatory reforms aim to simplify the complex framework and improve usability across jurisdictions, which should expedite compliance and enhance regulatory oversight.
“Governments globally are driving RTP adoption, leveraging a blend of incentives and regulatory measures. By balancing encouragement with oversight, they are paving the way for more seamless transactions and ensuring a secure, competitive, and customer-centric financial system. In parallel, banks are increasingly partnering with fintechs and technology providers to enhance their RTP offerings and expand their customer base, thus rethinking their liquidity management capabilities” —Helena Forest, Mastercard EVP, Global Product Management and Commercial, Real Time Payments
As Mastercard highlights, the complexities associated with RTP demand adjustments in regulatory reporting, particularly for real-time data requirements and intraday liquidity tracking. It is clear that banks should be using predictive analytics and automated reporting systems to meet evolving standards, which are expected to require more frequent, granular updates on liquidity positions.
Transform how you see and use data
Planixs collaborated with clients to develop the Realiti platform, a best-in-class real-time ILM tool used by leading financial institutions such as Barclays, Deutsche Bank, Lloyds, Santander, and many others. While the largest banks invest $millions in creating in-house systems, Realiti can also offer smaller banks similar capabilities at a lower cost and fast.
Realiti’s suite of tools put real-time visibility and intelligent liquidity management practices in the hands of every financial institution. The transformation in their operations can be remarkable.
What leading banks say
These three quotes are from clients of ours, banks like Santander, AIB, and Lloyds, demonstrating how implementing Realiti capabilities can generate value exceeding $100 million per annum:
1. According to one client “Companies not using Realiti are limiting their treasuries from tapping into this powerful source of real-time liquidity data, and therefore, they’re at a massive disadvantage. Choosing to manage liquidity the ‘old-fashioned way’ or manually when Realiti exists doesn’t make any sense.”
2. Another client highlights that, “If you’re paying your treasury staff to manually manage liquidity data, essentially, you’ll be paying skilled professionals to do basic administrative tasks.”
3. A client notes the platform’s benefits: “The platform’s additional features open up new opportunities by offering real-time visibility into counterparties, optimising fund transfers, and identifying spare liquidity for new products.”
We are seeing a paradigm shift in how financial institutions manage liquidity and navigate the complexities of modern-day transactions. Realiti has proven its value to financial institutions (FIs) repeatedly. The insight and analytics available from this data are transformational across all business units of the bank including Treasury, Operations, Risk, Front Office and Office of the CFO.
In short – don’t guess, know.
*Views expressed are personal.
