Basel has triggered “infrastructure reset”

The Basel Committee on Banking Supervision’s April 2013 report, Monitoring tools for intraday liquidity management, has provided banks with the “trigger to reset their current infrastructures”, said Detlef Braun, senior consultant at vendor SmartStream.

Historically, said Braun, cash and liquidity management on nostro accounts and liquidity management on RTGS accounts were treated separately by financial institutions. This was in terms of IT systems, management responsibilities and business lines. “But these areas have come closer together with the advent of the ISO 20022 standard and real-time information exchange,” he said.

Moreover, financial business is now very focused on intraday capabilities for RTGS and there is a need to more closely manage intraday liquidity on the nostro side of the equation.

“The Basel Committee’s report on monitoring tools doesn’t differentiate between RTGS and nostro,” said Braun. “We are seeing new requests for proposals from banks that ask for RTGS and nostro liquidity management functionality in the one system. This makes sense. Banks should have a single view for reporting and also for liquidity management.”

Intraday liquidity management has been a hot topic at this year’s Sibos. Simon Bailey, partner and director of financial services, commercial, at CGI, told Daily News at Sibos that regulatory pressure to have visibility of intraday liquidity – in real time – was now an established fact.

Prior to the financial crisis and the ensuing economic crash, intraday liquidity was not considered to be much of a problem – liquidity was abundant and institutions trusted each other to meet their obligations. But now it is scarce, the ability of an institution to see its liquidity standing – in real time – and also to control liquidity in order to smooth out the peaks and troughs of daily payments obligations, is key to effective liquidity management.

“Visibility of liquidity – the need to ensure you are not about to run into the rocks – is challenging because there are different systems, different sources of liquidity and different time zones and timelines involved,” said Bailey. “A financial institution has to put this all together into one place and make it visible.”

Most banks can do this, said Bailey. However, it is the visibility of the liquidity positions and the ability to demonstrate that to regulators that is difficult. Another dimension is control: “It is no longer enough just to be able to see your liquidity positions. You need to be able to control your positions so that if there is a problem, you can extract yourself from it.”

Intraday liquidity is “undoubtedly more of a challenge than it was in the past”, said Dominic Broom, managing director, head of sales and relationship management treasury services Emea at BNY Mellon. But times have changed, particularly since the financial crisis and regulators, while they have stopped short of insisting banks hold capital against intraday liquidity “it will come”, said Broom.

“The provision of intraday liquidity will incur proper charges and that will need to be offset in terms of higher costs,” he added. “There is an element of a supply chain here. There are a lot of inefficiencies because previously no one was thinking of costs and risks. Institutions realise they were being inefficient in handling their liquidity flows.”