Intra Day Liquidity Risk Management

Often vendors are called for whenever there is a requirement for implementation of a risk management system. We would like to discuss some of the key features of a tool that can help in management of Liquidity risk.

Typically, the following are some of the specification for an automated intraday liquidity risk management system that manages risks across both banking book and trading book. Any chosen solution must have capabilities which address business needs. These needs are related to the actions which business would be required to take if the data on Intraday Liquidity is made available to them. The business requirements are:

Sourcing and Processing of Real-Time Data

To enable the business to have a continuously updated view of the payments/receipts expected as well as the payments/receipts realised, data would need to be received and processed in real-time or near real-time.

Matching Ability

The system must have the functionality that allows the bank to configure rules which will enable the system to automatically match an expected payment/receipt with a realised payment/receipt and to immediately flag any anomalies. (data lineage)

Behavioural Intraday Profile

The solution must have the ability to perform Trend Analysis, Volatility Analysis and Historical Time-Series analysis in order to enable the bank to behaviouralise the timing of non-time critical payments and receipts during the day.

Stressed Behavioural Intraday Profile

The solution must have the ability to allow the bank to stress certain inputs to the intraday payment and receipts profile and to observe the effect of these stresses on the bank's intraday liquidity buffers.
The bank must have the ability to run these stresses intraday on the remaining portion of the intraday payment and receipt profile and available liquidity.

Available Liquidity

The system must have the ability to track the amount of collateral posted with the central bank which can be applied for additional intraday funding.

The system must also have the ability to track the amount of other unencumbered liquid assets held in the bank which could be applied to obtain emergency intraday funding should a shortfall arise.

Safe Settlement

The system must have the ability to:
• Identify missed payments or delayed payments by counterparties in the payment system and flag these counterparties as high-risk.
• Allow the bank to manually flag high-risk counterparties
• Have the ability to identify all scheduled payments for the trading day for those counterparties.
• Have the ability to identify the processing system for each scheduled payment to allow the bank to communicate the delay of payments to these parties.

Time Critical Payments

The system must have the ability to identify non-time critical payments scheduled by the bank to enable the users to:
• Give priority to time-critical obligations
• Identify payments which can be delayed to match receipts

Intraday Liquidity Users

The system must have the ability to track the intraday positions of large customers (Vostro's and Large Corporates) to identify the users of Intraday Liquidity.

Contingent Funding

The system must have the ability to identify areas of available intraday funding by:
• Comparing Intraday Nostro/Vostro Balances with the Intraday Limits to identify undrawn facilities
• Tracking unencumbered Liquid Assets which could be posted as additional collateral by the bank in periods of stress.
• Tracking available collateral with the central bank to identify the amount of funding available.

Reporting

In addition to the above, the solution must have a full reporting functionality (including regulatory, such as BCBS 225) which must be updated as frequently as the data is refreshed. The reporting functionality must provide business with the ability to drill down into the data and to report on the data based on multiple dimensions.

For more information, please email manoj.jain@riskpro.in

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