19 AprIntraday Liquidity – Trap #2

New rules. BCBS 248. Last week, the focus was on meeting requirements and being in line with the principles. This week, how to go about that and what it could cost. Be prepared to be shocked.

Once you have understood that dealing with BCBS 248 is about more than just another month-end report, then the rational conclusion is that you need intraday messaging from your Nostros and Depots. This is a “many-to-one” problem. To solve it, you would need to use an industry standard tool; SWIFT, that essential part of the plumbing that connects banks. Having once been stung by the cost of messages from a single point, CLS Bank, I have long quipped that “SWIFT the format is essential, but SWIFT the carrier is not”; if you have enough message volume to move between two points, it is worth looking at alternatives. But, when you have to move data from many places to one place, SWIFT the carrier is essential.

The foundation of the input needed will be MT900, debit and MT910, credit, messages. A few more would be needed, but focussing on these two will suffice. As best I can tell, all Nostros can send these things. What varies is the cost. Here I have seen a very wide church. A few include this as a basic service. Of late though, I have seen some pricing schedules with costs that I would describe as absolutely outrageous; prices of USD 1.00 equivalent per message from a major Euro Nostro and as high as twice that in North America.

I cannot tell if that is just an arbitrary starting point, an attempt to make hay while the sun shines and charge outrageous prices until somebody notices, or a defence mechanism because the Nostro’s systems would labour to send these things out. Matters not; the marginal cost of a SWIFT message for any Nostro these days is zero, because with SWIFT’s pricing, messaging is pre-paid in a plan like mobile phones. Clearly there is a cost, as SWIFT and the infrastructure has been paid for. I would support an argument that the fully loaded cost would be €0.01 and I would support an argument that allowed a 25% profit margin on that. I would then argue that at any price above €0.0125 there is very likely some price gouging, with clients being ripped off, if they are paying that, consciously or not. Check your bills!

Lessons to be Learned: Importantly, some fair play is needed here. All banks have to deal with BCBS 248 and SWIFT messages are a sine qua non for this; banks need each other.

Profiteering will be counter-productive; imagine how this might re-bound. You attempt to price-gouge, putting your clients, other banks, in a position of not being able to source data. They then have to answer to their regulator, to whom they say “We cannot obtain the reporting at an economic fee from our Nostro ABC Bank.” Maybe regulators will be unsympathetic and say “Suck it up” or “Find a new provider”, but I would expect dirt to stick.

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