RiskTech Forum

Proposal for an intraday liquidity regulation: the crack in the supervisory wall is to be closed

Posted: 9 October 2012  |  Author: Mariusz Podsiadlo - Head of Product Management, Misys Global Risk – Liquidity


Yet, the required work has been delivered:

Still, the risk connected to the intraday liquidity usage (intraday payment risk and collateral requirements) has not been addressed. This applies to mid-size and large banks everywhere and its efficient management can provide similar benefits:

Consequently, regulators want to see a more active supervision of settlement buffers and intraday cash flows. The Basel Committee therefore published a related consultative paper, ‘Monitoring Indicators for Intraday Liquidity Management’, in July. The banks would have to report their daily liquidity usage pattern, demonstrate their ability to execute time critical settlement operations (e.g. CLS), resolve any intraday settlement errors and stress test the default event of a major customer (liquidity provider/consumer) or a currency nostro agent. The intraday liquidity indicators proposed by the Basel Committee are trying to provide the required behavioural information.

Now, the Basel Committee has published initial replies from the industry and other interested parties to its proposal. In general, the responses see the proposed measures as onerous, partially unnecessary and technically difficult to implement. This sounds familiar, recalling the perception of the FSA liquidity regime at the time of its introduction. But nowadays, large UK banks benefit from the improved data quality and holistic view of their portfolio’s liquidity (see above for the US$35m pa savings), delivered thanks to the FSA framework: FSA reports are also often used as the basis for their internal liquidity reporting set.

A similar pattern can be seen in the intraday liquidity reporting case: the requirements are onerous, need refining and the amount of work required is not to be underestimated but the technology is there to deliver, like in 2010.

Banks, which have already invested in multi-currency, real-time enabled liquidity risk management systems benefit from the functionality, delivering a good foundation for the increased scrutiny imposed by the incoming intraday liquidity regulations and having the ability to:

The regulatory proposal may be updated but the bottom line remains: the ability to have a holistic analytical view of intraday and multi-day liquidity flow schedules delivers a competitive advantage and is high on regulatory agenda, moving towards being a legal requirement.