Come January 1st 2015, intraday liquidity management is set to become a key component of institutional liquidity management strategies. But what exactly is intraday liquidity, and what does the newly-intensified focus on these funds mean for the financial industry?</p> First things first: intraday liquidity is the term used for funds that may be accessed (and assessed) throughout the day to enable financial institutions (FIs) to make real-time payments. Sources of this type of liquidity are numerous, ranging from liquid assets on the balance sheet and payments received, to Central Bank reserve balances. The shift in regulatory focus from “end-of-day” to “intraday” liquidity positions may not seem like a particularly major development, but it gives rise to a number of practical challenges and higher-level industry concerns, that could potentially have far-reaching consequences.</p> </p> Dominic Broom, Head of Market Development, Europe, Middle East and Africa, BNY Mellon Treasury Service</p> </td> </tr></tbody></table>Let’s begin with the practical challenges. As outlined in the Bank for International Settlements’ </p> </svg> bcbs248.pdf </a> </p> </div> </div> , FIs will need to provide a range of figures for all accounts (including Nostro) and all liquidity sources on a monthly basis, across all seven quantitative monitoring tools (which may be used individually or in various combinations as a means of liquidity risk evaluation). Designed to complement the qualitative guidance on intraday liquidity management set out in the Basel Committee's 2008 Principles for Sound Liquidity Risk Management and Supervision</a>, Category A tools are applicable to all reporting banks and assess daily maximum liquidity usage in normal conditions, available intraday liquidity at the start of the business day, total payments activity and time-specific obligations. Tools in category B apply to reporting banks that provide correspondent banking services, and cover the value of payments made on behalf of, and intraday credit lines extended to, correspondent banking customers. Finally, the category C tool assesses the throughput of daily payments activity across settlement accounts, and is applicable to reporting banks that are direct participants, (i.e. a participant in a large-value payment system that can settle transactions without using an intermediary).</p> The figures reported by these tools (which must be available on demand) will then be used by supervisors to track intraday liquidity risk and assess FIs’ ability to meet payment and settlement obligations under both normal and “stressed” conditions. Any potential dangers must then be reviewed, and a mitigation plan put in place.</p> This is a big task, and puts a huge strain on data collation/management systems and reporting capabilities. Many FIs will not be able to shoulder this burden alone, and will instead look to specialist providers of liquidity management and banking technology solutions, for help in examining daily liquidity flows and managing causes of negative liquidity positions and exposure to intraday liquidity risk. By leveraging such specialist support – both in terms of expertise and operational tools – FIs can not only achieve compliance, but potentially reduce their intraday overdrafts and manage payment flows more effectively. This will result in lower intraday liquidity and operating costs.</p> Of course, some questions remain, particularly over precisely how the intraday liquidity data that is collected might be used, and how (inevitable) dips in intraday liquidity positions may be perceived. There are also concerns from some quarters over the true relevance of such data – intraday liquidity data becomes historic the moment it’s reported, and what real use is historic data to forward-planning?</p> But there are also more positive, ancillary outcomes to a focus on intraday liquidity management. Despite the inherent, short-term challenges, the more granular provision of data can only be a positive, as data provides the insight and understanding required to optimise overall liquidity management. In the longer-term, the more effective use of liquidity can allow FIs to self-fund business development – and therefore decrease their dependency on debt – which will prove vital to business sustainability.</p> This article first appeared in FX-MM magazine in February, 2014</em> </p>