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The pressure is mounting on smaller financial institutions not only to monitor but to actively examine and control, intraday liquidity in real-time.
Since the financial crisis, intraday liquidity management has become a focus for regulators.
In April 2013, the Basel Committee on Banking supervision published guidelines on monitoring tools for intraday liquidity management, introducing the BCBS248 requirements. The regulation aims to ensure banks can meet their payment obligations and determine their liquidity position at regular intervals daily.
Regardless of the size of the bank, these requirements continue to put pressure on treasury departments, and the interest by regulators into intraday liquidity management is only set to increase.
On January 1, 2019, the European Central Bank (ECB) published final guides for banks’ internal capital and liquidity adequacy assessment processes came into effect. The updated guides saw the central bank change its view from a box-ticking exercise to a more proactive approach. The guides set out the ECB’s expectations for how banks will be supervised and which elements of the bank’s activities regulators need to examine.
“In addition to an adequate quantitative framework for assessing liquidity adequacy, a qualitative framework needs to ensure that liquidity adequacy is actively managed. This includes the monitoring of liquidity adequacy metrics to identify and assess potential threats over different time horizons, including intraday, in a timely manner, drawing practical conclusions and taking preventive action to ensure that regulatory and internal liquidity buffers remain adequate,” the guides state.
With bottom lines being squeezed, treasury departments are being pushed to drive efficiency. A key component of that is the optimisation of intraday liquidity. Efficient liquidity management oversight and effective stress modelling can lower buffer costs - reducing contingent liquidity requirements and daily collateral needs. As liquidity within the market tightens, and intraday liquidity costs continue to rise, firms that fail to act will find themselves at a competitive disadvantage.
Overcoming the tech challenge
For many banks, different departments continue to work off different solutions. Adding to the challenge, in-house technology builds have meant when the developers leave, solutions cannot be developed further or updated for oncoming requirements.
Having a real-time overview of data from across the bank is crucial for implementing a successful liquidity management solution. Often information on customer cash flows for example are held in separate systems instead of a consolidated central repository, bringing an additional hurdle to intraday liquidity management.
Many financial institutions continue to rely on manual processes such as excel documents for their liquidity management. But as regulations become more complex and burdensome - and there is little room for human error - excel will no longer be an effective solution.
Banks can no longer calculate intraday liquidity buffers based on end-of-day batch processing. With the speed of changes in liquidity and associated counterparty exposures, banks will need solutions that can adapt to these requirements and be able to accurately calculate intraday liquidity buffers.
And banks must be able to show they have adequate liquidity management processes in place for stress scenarios. For smaller banks, there is a growing need to have systems in place with stress test modelling capabilities.
Banks must look externally to incorporate efficient systems that are within reach from a budgetary perspective. This an opportunity for smaller financial institutions to get ahead of oncoming regulatory scrutiny.
To assist with these growing challenges Planixs has developed an intraday cash and collateral liquidity management software solution within the treasury management function which is specifically created with smaller financial institutions in mind.
Realiti Essentials allows smaller banks to view their balances and transactions in timely intervals and meet the intraday challenge for regulators. The solution uses standard SWIFT intraday statements from correspondent banks; allows firms to stress test liquidity under different scenarios; and can deliver BCBS 248 regulatory reporting.
The solution is hosted by Planixs and delivered in a SaaS model which means the implementation of the software can happen in three to four weeks, and it won’t impact existing IT infrastructure. With an all-inclusive price structure, it also allows smaller banks to easily budget to implement the software.