15 DecIntraday Liquidity. How regulators will measure from 2015

The BCBS guidelines are titled “Monitoring Tools for intraday liquidity management”.  The title is disingenuous; from the perspective of the banks they are not tools, they are KPI’s or KPI’s. Key Risk or Performance Indicators. And, they are a measure of credit taken and credit given. The more you either take or give, the more likely it is that your local regulator will suggest a revision to the liquidity buffer. Upward being the likely direction. Every $1B swing in that number will move the cost meter by $10 million. This week’s post will look at what the requirements are; in the coming weeks we will look at what banks might want to do about it.

The first requirement is one of measuring intra-day positions both very accurately and continuously. Various positions and queues in clearing systems need to be reported.  An added twist is that banks must also measure two dimensions of positions; credit giving, i.e. the actual intra-day usage by their correspondent or Nostro banking clients, and credit taking, i.e. the actual intra-day usage they make of lines with their correspondents.

Requirements around intra-day measurement are not entirely new; in the UK, the old FSA had some requirements under its policy statements. The new requirements come into effect from January 1st 2015, to coincide with the reporting on LCR. In the UK, the PRA is already enforcing this new standard. All banks are required to measure certain values:

  1. “Daily Maximum Intraday Liquidity Usage.” In plain English, this is the maximum overdraft during the day. Note during, not at the end of. The three peak overdrafts and the average have to be measured.
  2. “Available Intraday Liquidity at Start of Day.” This is about long cash balances or securities collateral. As a rule, securities collateral has to be in the same currency as liquidity usage or as a negative start of day cash position in order to be considered as an offset.
  3. “Total Payments.” This is simply for context, largely for the two measures above.
  4. “Time-specific obligations.” These are where a bank has specific commitments to meet its own proprietary obligations. Typically this will be funding associated with clearing, such as Eurex, where payments are due by 09:00 and, almost certainly, CLS, where payments are due according to a strict timetable between 08:00 and 12:00 CET. Increasingly, the CCP related obligations will be in this bucket too.

There are additional requirements for those banks that act as a Nostro or Correspondent Bank:

  1. “Largest Daily Totals.” This is analogous to the “Total Payments” items that FI’s have to measure for their own account. This is simply the sum of what is done for others. The three largest days and the average have to be measured.
  2. “Intraday credit lines.” The three largest over the period have to reported and whether they are secured and or committed.
  3. Those banks that are direct participants of a payments system have the additional obligation of reporting on their throughput. The measure for this is the cumulative percentage made by the hour, with an average over the period; i.e. on average 8% made by 08:00, 20% by 09:00 etc.

Lessons Learned: The past tense is not appropriate here. The danger here is that resources are so tight that this is treated as a “tick in the box” exercise; doing just enough to satisfy the requirement.

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