Lack of liquidity management could prove catastrophic
26 March 2014 London
Image: Shutterstock
SmartStream Technologies has written a paper to help banks identify the implications and solutions needed to meet the intraday liquidity regulatory monitors, scheduled for enforcement from January 2015.
The paper highlights concerns from an operational and regulatory perspective.
Without strategic intraday liquidity management, failing transactions will bring payment and security settlement systems to a standstill, which could have wide systemic implications given the interconnectedness of participants in the transaction value chain, said a release from the firm.
“The larger implications of delayed payments, throttling or not being able to settle obligations due to insufficient liquidity can be catastrophic for financial markets as was demonstrated during the financial crisis.”
The paper titled ‘Intraday Liquidity Management—The Time is Now’ looks at intraday liquidity requirements, regulations, risk implications, data quality and the need for banks to have a duty of care.
It also discusses the pressures on correspondent banks, and how network managers will have a role to play in ensuring that correspondent banks provide full reporting coverage.
Nick Noble, product manager at SmartStream, said: “Correspondent banks will bear the brunt of the changes as few today are able to provide the level of detailed real-time reporting that the monitoring tools call for. To overcome these data challenges banks will need to migrate from cash management solutions focused on settlement to systems that support the new T+0 operational paradigm”.
Darryl Twiggs, head of product management at SmartStream, said: “This paper is the result of forums we have held with those financial institutions who clearly see this as a major concern. Banks that continue to operate without visibility into their exposure will be left behind the curve and won’t understand where their risks are.”
“Most banks' legacy systems and processes work on an end-of-day or overnight basis and are not geared toward providing real-time or intraday information. In addition, trade information is dispersed across different trade and transaction processing solutions which in turn creates IT and data access challenges."
"Banks will need to find a way to aggregate data across these different silos in order to gain a holistic view of their positions, liquidity and exposure. They will then have to 'normalise' that data so that all parts of the organisation are singing from the same hymn sheet. We have been proactively raising these issues with our clients and they understand the strong arguments from both an operational and regulatory perspective”.
The paper highlights concerns from an operational and regulatory perspective.
Without strategic intraday liquidity management, failing transactions will bring payment and security settlement systems to a standstill, which could have wide systemic implications given the interconnectedness of participants in the transaction value chain, said a release from the firm.
“The larger implications of delayed payments, throttling or not being able to settle obligations due to insufficient liquidity can be catastrophic for financial markets as was demonstrated during the financial crisis.”
The paper titled ‘Intraday Liquidity Management—The Time is Now’ looks at intraday liquidity requirements, regulations, risk implications, data quality and the need for banks to have a duty of care.
It also discusses the pressures on correspondent banks, and how network managers will have a role to play in ensuring that correspondent banks provide full reporting coverage.
Nick Noble, product manager at SmartStream, said: “Correspondent banks will bear the brunt of the changes as few today are able to provide the level of detailed real-time reporting that the monitoring tools call for. To overcome these data challenges banks will need to migrate from cash management solutions focused on settlement to systems that support the new T+0 operational paradigm”.
Darryl Twiggs, head of product management at SmartStream, said: “This paper is the result of forums we have held with those financial institutions who clearly see this as a major concern. Banks that continue to operate without visibility into their exposure will be left behind the curve and won’t understand where their risks are.”
“Most banks' legacy systems and processes work on an end-of-day or overnight basis and are not geared toward providing real-time or intraday information. In addition, trade information is dispersed across different trade and transaction processing solutions which in turn creates IT and data access challenges."
"Banks will need to find a way to aggregate data across these different silos in order to gain a holistic view of their positions, liquidity and exposure. They will then have to 'normalise' that data so that all parts of the organisation are singing from the same hymn sheet. We have been proactively raising these issues with our clients and they understand the strong arguments from both an operational and regulatory perspective”.
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