Start 2023 with six reflections on intraday and real-time liquidity management

Frankfurt skyline at nighttime but with intraday liquidity
Pete McIntyre, the liquidity expert

Written by Pete McIntyre

January 10, 2023

Banks and regulators are being urged to integrate real-time demands into stress tests and scenarios to gain powerful, novel insights and intelligence.

2022 was a year of getting back out into the real world and seeing what was happening.  I was able to meet 1-2-1 with old and new contacts, attend/present at conferences and participate in round table discussions.  As 2023 starts here are some reflections on the state of Intraday Liquidity / real-time liquidity management and what might be important in the year ahead.

1 – Interest rates are increasingly relevant

I wrote at length on this topic in December (Pete’s post on interest rates) and the long story cut short is that liquidity is becoming increasingly costly so optimising (down!) your intraday liquidity cost is even more important than ever.  If you revisit your business cases and plug in higher assumptions for interest rates you will find the case for change is (even more) overwhelming.

2 – Infrastructure changes are impacting the world of Treasury

Digital assets, crypto currencies and DLT-enabled marketplaces were a major topic of conversation in 2022.  Their steady advance will make the life of Treasuries more complicated – by tying up liquidity across more accounts/venues, changing business processes and increasing the demand for more frequent (even real-time) movements of liquidity. [Pete’s post on digital assets].  

ISO2022 and the change to new messaging formats has shaken up much of the background infrastructure that liquidity management relies upon.  In many cases this is a good thing, as this rich data supports advances in analytics, but forced changes to a firm’s IT infrastructure is rarely pain free and often demands changes to legacy applications.  Take the opportunity to modernise your data and applications and reap the rewards from advanced analytics!

3 – Regulators are stirring

This is partially related to increased liquidity costs (and hence need for buffers to reflect new realities) and the changing infrastructures requiring changes to process and practice.  There is no new global BCBS standard addressing intraday liquidity, but I’ve seen quiet movement from a number of regulators in this area.  Please let me know via the comments if you have anecdotes from any regulators in addition to the three mentioned in the next paragraph.

In the US the Fed has included intraday liquidity as one of its priorities for 2023 (see Box 11 here  The Swiss regulators consulted on how the large Swiss firms should calculate intraday buffers.  They originally intended to have a blanket model that worked for all firms, but have shown flexibility in recognising each firm is different and hence will agree tailored models with each one.  Japanese regulators are starting to talk about intraday for the first time and in particular want to understand the intraday liquidity usage for Japanese firms operating in overseas markets like the US.

4 – Corporates are thinking real-time

When corporates are asked about their priorities for the future we see consistently that having real-time access to cash balances across their range of accounts is high on their list.  With increasing real-time payment infrastructures, and with liquidity becoming more valuable/expensive, corporate banks should expect to see their treasurer clients becoming more savvy about how they manage liquidity e.g. timing their payments to reflect real-time balances and seeking returns on long cash positions.  For those banks where client liquidity drives the bank’s own liquidity positions, adapting to this changing world is vital.

5 – The utility of data

In recent years firms have been grappling with the challenges both of sourcing the data needed and constructing the technology infrastructure required to build intraday insight in real time.  Those who have succeeded will now be enjoying the benefits from this insight in day to day managements of cash and liquidity.  I am starting to see attention move to how to exploit further this ‘data as an asset’.  The real-time view being used to manage the firm’s positions also happens to generate a cross-firm, cleansed dataset, which provides deep insight into the firm’s assets & liabilities plus the drivers of those asset and liability positions.  As well as providing the pointers and evidence as to what is driving liquidity usage (helping to identify required changes) the dataset can help with business planning, product design, resolution planning, FTP, credit/counterparty risk management and much more. 

6 – Bringing securities into the picture

In recent years firms have concentrated on improving visibility on cash activity, but that’s only part of the full liquidity picture.  A firm’s securities positions make up the rest of the liquidity story and a wise treasurer should be aware of any unencumbered securities they might be able to utilise, for example in responding to a margin call or a need to pledge collateral to access a credit line.  So if the real-time/intraday requirement for cash is “know where you cash sits right now and where you expect it to move next” then for securities the requirement is to know in real time “what have we got, where is it, can we use it  and what’s it worth (including after haircuts)?”

The best firms have delivered on their real-time liquidity management/intraday cash requirements, but very few can say the same thing for securities and I expect to see much more focus on this in 2023.

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