Carolina Caballero
Global Clearing Risk &
Regulatory Strategy Manager
Intraday Liquidity Management New Basel Spotlight
End of Day
30 day funding ratio Relationship between Set of monitoring tools
Banks required to banks settlement intended for reporting
hold high-liquid assets obligations (longer banks intraday liquidity
amounts equal to or term) and funding risk in normal and stress
greater than their net Requires stable conditions
cash over a 30 day funding available Enable banking
period amount to exceed supervisors to monitor
Intraday cash and required amount over banks intraday liquidity
collateral sufficient to a one-year period of risk and its ability to meet
survive net cash extended stress payment and settlement
outflows caused by Assesses value of all obligations on a timely
crisis events asset types held basis
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Basel Monitoring Indicators How we got here
Sept 2008 Basel Committee on Banking Supervision (BCBS) published it Principles for Sound
Liquidity Management and Supervision
Principle 8: A bank should actively manage its intraday liquidity positions and risks to meet
payment and settlement obligations on a timely basis under both normal and stressed conditions
and thus contribute to the smooth functioning of payment and settlement systems
July 2012 BCBS released a consultation paper on Monitoring Indicators for Intraday Liquidity
Management
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Intraday Liquidity Monitoring Objectives
Promote further sound intraday liquidity management and complement the qualitative guidance
of the Sound Principles to ensure that a bank can meet payment and settlement obligations on a
timely basis under both normal and stressed conditions
Enable banking supervisors to monitor Internationally active banks intraday liquidity risk and
their ability to meet payment and settlement obligations on a timely basis under both normal and
stressed conditions
Intraday liquidity should lead to closer co-operation between banking supervisors and the
overseers in the monitoring of banks payment behaviour
Promotion of sound liquidity management practices for domestic banks. Prescriptive application
of the tools will be at discretion of national supervisors
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The Monitoring Tools
Assess concentration in
Provide dimension on banks Banks correspondent Establish trend on Banks
payments activity and activity and extent of average payment settlement
intraday liquidity usage and exposure on intraday credit to identify any changes that
availability in normal times lines might occur
Own Financial Stress: a bank suffers or is perceived from suffering from a stress event
Stress Counterparty Stress: Major Counterparty
Scenarios
A Customer Banks stress Correspondent Bank
(Guidance)
Market-wide credit or liquidity stress
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Intraday Liquidity Reporting Challenges
While efforts to promote sound intraday liquidity practices across the industry should be
welcomed, there remain implementing challenges
Meaningful supervisor engagement has not yet occurred with industry focus to date primarily on LCR
and NSFR
Focus is on monitoring as opposed to controls with significant opportunity cost to creating required
RTGS Participants Time
reporting infrastructure
Participants Critical
Data is backward looking and may not be timely in identifying stress points. Uncertainty
Interdependence remains as to
Obligations
how data will be applied by relevant supervisors
Level of transactional detail required to facilitate reporting is more significant than other Basel liquidity
requirements. Data collation efforts are very significant
Central across
Internationally active banks need to tackle reporting requirements Bank currency, Correspondent
multiple clearing
Reserve
system and correspondent relationships (often for same currency) and across homeBanking
and host Daily
regulators based on legal entity structure Management Credit Facilities
Risk of certain banks gaming the system exists by delaying payments to improve intraday liquidity
positions
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Intraday Liquidity Changing Landscape
There are numerous factors outside of Basel Monitoring Tools that are changing the landscape
and increasing focus on Intraday Liquidity
DODD Frank and EMIR continue to mitigate counterparty and settlement risk on OTC derivatives by
pushing settlement into clearing system but these times payments place additional strain on intraday
liquidity
RTGS Participants Time
Regulators are placing restrictions around co-mingling of collateral pools across different legal
becomes more expensive Critical
Participants
entities. Economies of scale are therefore lost and collateral
Interdependence Obligations
General pressure on banks net income lines are triggering banks to review collateral cost where there
are massive differences across the industry in terms of efficiency management and potentially
significant savings
Momentum in discussions around intraday liquidity is causing Banks to re-think their internal transfer
pricing policy where charge was not previously not passed back to the business
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Client Intraday Analysis: Practical Examples
Closely aligned
$750MM payment flows
starting balance
m m m m m m on pm pm pm pm pm pm
m m m m m m on pm pm pm pm pm pm 6 a 7 a 8 a 9 a 10 a 11 a 2 no 1 2 3 4 5 6
6 a 7 a 8 a 9 a 10 a 11 a 2 no 1 2 3 4 5 6 1
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($800MM) Net
Account Balance
Payment flows are consistent and closely aligned Payment flows are inconsistent and Liquidity required for
outgoing payments
throughout most of the day misaligned over the day
Account balance is large enough to cover spikes in the Early inflows provide a positive balance but subsequent
day outflows and spikes require liquidity utilization
Client ends the day with a positive account balance on par Client ends the day with a zero or positive balance
with the start of day balance
Additional collateral pledging required with the RTGS
No additional collateral pledging required with RTGS system due to large peak usage
system
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Implications for the Banking Industry
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Where is Citi in terms of Intraday Liquidity Requirements?
Continuing discussions with regulators to gain insight on interpretation of BASEL III guidance
Working with Industry Groups to raise awareness on complexity of new requirements with Central
Banks
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Summary
We aim to be at the forefront of Intraday Liquidity Management space, engaged with
regulators, industry groups and service providers
2013 BCBS Intraday Liquidity Monitoring impact direct and indirect clearing
participants
Background All participants to develop monitoring dashboards and reporting capabilities
Local regulators still interpreting of BASEL and defining compliance deadlines
Possibility for deadline to be extended or phased out
Industry will manage liquidity utilization tighter and assume less credit exposure
Industry Look to achieve payment flow alignment and minimize collateral pledging costs
Implications Pricing through the banking chain for intraday liquidity value is inevitable
Development of monitoring and reporting tools complex and cost intensive
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Thank you
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