We never know the worth of liquidity until it is gone. 2023 was littered with banks that lost the good fight, and every one of them exposed liquidity challenges in the financial industry.
Now, regulators across the globe are intensifying their focus on liquidity management and the risks associated with it. They particularly want banks to have the necessary information to plan for crises and understand how to gracefully move into resolution if needed. This includes understanding the crisis as it unfolds and managing the recovery process effectively.
The short version? According to the Single Resolution Board (SRB) – and the Fed, and the Swiss National Bank for that matter – a revolutionary shift towards real-time liquidity management has never been more urgent.
“Liquidity in resolution is the elephant in the room. Nothing new, but still an unsolved issue. Recent events in the US and Switzerland have shown that liquidity crises can happen fast – and be driven by social media and digital banking.” – Dominique Laboureix, 18th IESE Banking Sector Industry Meeting, Madrid, 2023
In 2023 we saw that stakeholders were reluctant to roll over or lend money to a bank in crisis. We also know that depending on the resolved bank’s business model, liquidity stress can endure after a successful resolution.
It’s not surprising that the priorities of the SRB include a focus on enhancing crisis readiness and putting resolution techniques into practice. As a specific example, many European banks have been asked by the SRB to develop capabilities to understand and report their liquidity position at short notice (max 24 hours) and at high frequency (more than once a day). There will also be an annual exercise to test capabilities.
What the SRB expects from banks
The guidance focuses on the liquidity aspect of the SRB’s earlier Expectations for banks, probing the readiness of banks for a possible resolution. Liquidity plays this critical role, because the SRB’s expectations from 2023 onwards have been:
– banks must develop the capabilities to report a predefined set of data points on their liquidity situation
– banks must put in place remedial actions to mitigate any deficiencies in their capabilities
– banks’ internal frameworks, governance, and management information systems must be set up to meet the data expectations set out in the guidance, including the ability to forecast the net liquidity position across any period and at short notice.
SRB Chair, Dominique Laboureix says, “Our goal is to make sure that if a major bank in the Banking Union gets into trouble, that we can deal with it swiftly, providing confidence to the market and the consumer, while not having to dip into taxpayers’ funds. The right information about liquidity is essential to achieve these goals.”
As outlined in the SRB’s Expectations for Banks, firms need to:
- develop methodologies to estimate – before the event – the liquidity needs for the implementation of the resolution strategy
- be able to measure, report and forecast their liquidity position and relevant liquidity metrics during the resolution process
- be able to identify and mobilise assets that could be used as collateral to obtain liquidity in resolution anticipating any legal, regulatory and operational obstacles to their mobilisation under stressed conditions.
Real-time liquidity management is no longer ‘nice to have’
With the SRB’s strategic shift, real-time liquidity management is no longer ‘nice to have.’ If you want to mitigate risk and make your money work harder, you need easy-to-access, real-time data at your fingertips. It is essential for compliance and the cornerstone of successful strategic growth.
The Realiti suite addresses a number of the SRB’s expectations for banks. It is the only liquidity intelligence solution to deliver real-time, enterprise-wide 360° visibility of a firm’s liquidity landscape, control over treasury activities and value-creating insights. All in one place.
Clients have commented that Realiti is the only proven provider in this banking liquidity space. Additionally, the architecture of the solution makes implementation remarkably nimble. Realiti aggressively fends off regulators and also drives a strong business value contribution–further enhancing the value for banks.
The outcomes for Planixs clients speak volumes – millions in savings on intraday liquidity buffer costs, ensuring compliance with the BCBS248 regulatory agenda, and fostering efficient and effective funding operations.
Realiti’s staged rollout plan ensures that high-priority items, including regulatory compliance, are addressed first. This approach allows treasuries to experience immediate benefits while providing the flexibility to customise and expand functionality in subsequent stages.
Proving Realiti is worth your investment
Investing wisely is a priority for every organisation, and costs play a significant role. However, when weighing the benefits of Realiti against its cost, the value proposition becomes evident.
Realiti’s comprehensive suite streamlines your operations, leading to enhanced productivity and cost savings in the long run. Its advanced forecasting capabilities and optimization tools enable you to make data-driven decisions, yielding superior financial outcomes. Additionally, the reduction in manual labour and enhanced efficiency result in a more cost-effective Treasury operation.
You are warmly welcome to ask us any questions. Book a call to get expert advice from Planixs, we’d love to talk to you.
