Citi TTS Seminar
BASEL III Intraday Liquidity
Carolina Caballero
Global Clearing Risk &
Regulatory Strategy Manager
Intraday Liquidity Management – New Basel Spotlight
Basel Liquidity Risk Management Framework
Liquidity
Coverage Ratio
(LCR)
Net Stable
Funding Ratio
(NSFR)
Monitoring tool
for Intraday
Liquidity Mgmt
End of Day
 30 day funding ratio
 Banks required to hold
high-liquid assets
amounts equal to or
greater than their net
cash over a 30 day
period
 Intraday cash and
collateral sufficient to
survive net cash
outflows caused by
crisis events
 Deadline: 2015
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 Relationship between
bank’s settlement
obligations (longer
term) and funding
 Requires stable
funding available
amount to exceed
required amount over
a one-year period of
extended stress
 Assesses value of all
asset types held
 Deadline: 2018
 Set of monitoring tools
intended for reporting
banks’ intraday liquidity
risk in normal and stress
conditions
 Enable banking
supervisors to monitor
banks’ intraday liquidity
risk and its ability to meet
payment and settlement
obligations on a timely
basis
 Deadline: 2015
(Coincide with LCR)
Basel Monitoring Indicators – How we got here
•
Sept 2008 – Lehman Brothers filed for Chapter 11 bankruptcy
•
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
•
April 2013 – Monitoring tools for intraday liquidity management
•
Jan 2015 – Implementation Date??
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Intraday Liquidity Monitoring Objectives
Significance of New Rules
•
Key objectives are:
– 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
Correspondent Bank
Service Providers
All Banks
1) Daily max intraday liquidity
usage (Largest net negative
position)
2) Available intraday liquidity
at the start of the day
3) Total payments
5) Value of payments made on
behalf of correspondent
banking customers
Direct
Participants
6) Intraday credit extended to
correspondent banking
customers.
7) Intraday throughput – daily
average across a bank’s
settlement account with an
average hourly view reported
as a percentage of overall
payments
Assess concentration in
Bank’s correspondent activity
and extent of exposure on
intraday credit lines
Establish trend on Bank’s
average payment settlement
to identify any changes that
might occur
4) Time Critical Obligations
Provide dimension on banks
payments activity and
intraday liquidity usage and
availability in normal times
Stress
Scenarios
(Guidance)
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
Own Financial Stress: a bank suffers or is perceived from suffering from a stress event

Counterparty Stress: Major Counterparty

A Customer Bank’s stress – Correspondent Bank

Market-wide credit or liquidity stress
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
Participants Time
RTGS
reporting infrastructure
•
Critical
Participants
Data is backward looking and may not be timely in identifying
stress points. Uncertainty
remains as to
Obligations
Interdependence
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
•
Visibility in correspondent banking space is an issue
•
Internationally active banks need to tackle reporting requirements across currency, multiple clearing
Reserve
system and correspondent relationships (often for same currency)
and across home Banking
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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Central Bank
Correspondent
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
Regulators are placing restrictions around co-mingling of collateral
pools across different legal entities.
Critical
Participants
Economies of scale are therefore lost and collateral becomes
more expensive
•
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
•
Emerging currencies can often initially have heightened intraday liquidity constraints that need to be
Reserve
Banking Daily
carefully managed
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Participants Time
Interdependence
Obligations
Central Bank
Correspondent
Management
Credit Facilities
Client Intraday Analysis: Practical Examples
Client A
EOD balance
on par with SOD
Client B
$2B Peak
$750MM
starting balance
Closely aligned
payment flows
($800MM) Net
Account Balance
Liquidity required for
outgoing payments
• Payment flows are consistent and closely aligned
throughout most of the day
• Payment flows are inconsistent and
misaligned over the day
• Account balance is large enough to cover spikes in the day
• Early inflows provide a positive balance but subsequent
outflows and spikes require liquidity utilization
• Client ends the day with a positive account balance on par
with the start of day balance
• No additional collateral pledging required with RTGS
system
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• Client ends the day with a zero or positive balance
• Additional collateral pledging required with the RTGS
system due to large peak usage
Implications for the Banking Industry
Re-thinking
Intraday
Liquidity
Developing
Monitoring
Tools
 Banks looking to mitigate risk through active liquidity management
 Catalysts to break down Business units silos and apply end to end
Business Management principles to Intraday Liquidity
 Optimize workflows and matching incoming and outgoing flows at a
more granular and business level. Become more efficient and Rethink
FIFO approach
 Challenges to develop in-house: tech spend, resource availability,
data and reporting complexity and deadline (Jan 2015)
 Certain Correspondent Banks developing tools to meet reporting
requirements and provide reporting capabilities to clients
 Technology Vendors also developing monitoring dashboards
 Assess underlying costs and risk for intraday funding
Pricing
Liquidity
 Focus on transfer charges (within entity) and pledging costs
 Reassess payments mandates considering:
– Transaction processing requirements (e.g. urgency)
– Flow volume impact on intraday
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Where is Citi in terms of Intraday Liquidity Requirements?
• Investing in development of Intraday Liquidity Monitoring tools
– Monitoring capabilities available in USD, EUR, GBP and CHF
– Provide regulatory reporting capabilities to FI clients per BASEL 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
• All participants to develop monitoring dashboards and reporting capabilities
Background
• 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
Implications
• Look to achieve payment flow alignment and minimize collateral pledging costs
• Pricing through the banking chain for intraday liquidity value is inevitable
• Development of monitoring and reporting tools complex and cost intensive
• Citi expanding internal capabilities to meet BASEL reporting requirements
Citi
Strategy
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• Offer intraday liquidity reporting capabilities to clients in USD, EUR, GBP and CHF
• Engaged with regulators and industry groups to raise complexity and fine tune
requirements scope
Thank you
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