From 1 January 2015, large, internationally active banks will have to demonstrate to national regulators that they are actively managing their intraday liquidity.</p> April 2013 saw the publication, by the Basel Committee for Banking Supervision, of the ‘Monitoring Tools for Intraday Liquidity Management’. The report provides national authorities with a flexible set of monitoring tools to ensure that large, internationally active banks are managing their intraday liquidity appropriately.</p> From 1 January 2015, banks will have to provide monthly reports to financial authorities evidencing the way in which they manage intraday liquidity levels. Although reporting is retrospective, furnishing authorities with the level of detail required will be challenging. Financial institutions must supply information on their daily maximum liquidity usage, which will have to be calculated using ‘settlement time-stamps’ and ‘transaction-by-transaction’ data. They will also need to report the liquidity available at the start of each business day, total payments per day, as well as the total value of time-specific obligations that settle each day. Regulators will wish to hear how each bank plans to deal with financial stresses, too.</p> In practice, financial institutions will need to know the impact that each trade has on liquidity levels, throughout its lifecycle, on a minute-by-minute basis. Yet for many organisations this is simply not possible at present. Banks’ internal systems and processes usually operate on an end-of-day or overnight basis, rather than providing information in real time. To complicate matters further, data is held in a variety of trade and transaction processing solutions, making it far from easy to access. In addition, data is seldom of one standard type, so, once aggregated, must be normalised.</p> Financial institutions will also need to consume, consolidate and aggregate information provided through their network of correspondent and central banks in order to understand, manage and report on their own intraday liquidity risk.</p> Amassing information from correspondent banks will present a particular challenge as these generally employ systems and processes that operate on an end-of-day basis. Time-stamping by correspondent banks is rare and the quality of reporting varies considerably. Network latency can further obscure matters, potentially prevent a customer bank from pinpointing its precise liquidity position at a specific moment in time.</p> Not surprisingly, correspondent banks look set to come under pressure from customers to improve reporting capabilities. Indeed, the ability to provide accurate, up-to-the-minute information is likely to become a significant advantage amongst financial institutions competing for correspondent banking business.</p> Correspondent banks will not just face pressure from customers but also from national regulators. Institutions providing correspondent banking services will need to report on the value of payments made on behalf of clients, supply details of the three largest intraday credit lines extended to customers, report peak usage, and indicate whether lines are secured or committed.</p> January 2015 is fast approaching and, although regulators have indicated that systems may not have to be fully ready until 1 January 2017, it is essential that banks take action promptly.</p> At SmartStream we believe that, although some financial institutions may wish to put in place a tactical fix in order to satisfy impending regulatory requirements, the greatest gains can be made from implementing a strategic solution.</p> Article contributed by SmartStream.</em></p> </p> </svg> bcbs248.pdf </a> </p> </div> </div>