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Concerns rise about intraday liquidity risk reporting as 2015 deadline looms

With four months to go before international banks need to start reporting intraday liquidity risk, concerns are escalating that the lack of clear and emphatic guidance on the matter will lead to disparate application of the requirements and the deadline being missed.

Basel Committee Tower-box
Towering over banks: the BCBS headquarters in Basel

From January 1, international banks will need to start reporting intraday liquidity risk under recommendations published by the Basel Committee on Banking Supervision (BCBS) in April 2013. However, such recommendations are unlikely to be applied unilaterally as they are wide open to interpretation by local market regulators, which must also ensure they are passed into local law. 

So far, there has been little urgency among local market regulators to do this. 

“Hopefully we won’t end up with widely different rules in different jurisdictions,” says Ludy Limburg, senior product manager, global transaction services, at Royal Bank of Scotland (RBS). “As banks, we have a responsibility to work with regulators about what is possible and what can be done.”

Christian Goerlach, head of balance sheet and liquidity management for financial institutions, global transaction banking, at Deutsche Bank, says it is vital for banks to better manage intraday liquidity risk, and as part of that “there is continued dialogue with regulators to develop a comprehensive intraday framework, so that the potential risk of unintended consequences is mitigated”. 

Total control

At its simplest, the BCBS recommendations are designed to ensure banks better understand their intraday liquidity risk on all their accounts, and as a result can demonstrate they have total control of their clients’ capital flows as well as their own.

Calculating the daily maximum intraday liquidity usage and the availability of intraday liquidity at the start of the business day and at certain other points, as well as during particular stressed environments, is broadly what is being required of international banks.

The BCBS requires banks to consider impact under four stress scenarios and details the reporting by systems, currencies, branches and subsidiaries and correspondent banks.

However, one of the main challenges banks face here is being able to calculate this quickly – within the space of a few minutes if not seconds – and report it accurately to the regulators.

“Legacy systems are not set up for intraday liquidity reporting,” says Limburg at RBS. “Banks and the industry collectively need to address that to enable effective reporting.” 

According to Swift, the BCBS liquidity monitoring tools, which were recommended last year, require a retrospective view of aggregated data points using credit/debit confirmations from servicing institutions and payments settlement systems.

Based on analysis of the data by Swift, it says only 20% of total correspondent banking payment instructions on Swift are confirmed with a credit/debit confirmation message. The share in value is higher, reaching 55%, and has increased by 4% during the past year.

“To achieve the level of detail required by the retrospective BCBS measures, banks will need to build the intraday position for each of their accounts with real-time credit/debit confirmations”, says Catherine Banneux, senior market manager, banking, at Swift.

“This is a critical component of the monitoring requirements that will differ according to a bank’s size and profile. Progress needs to accelerate in order for banks to be ready for BCBS reporting.”

Wim Raymaekers, head of banking and treasury markets at Swift, adds: “There is a fair amount of uncertainty about the reporting requirements across jurisdictions. While that is being ironed-out, banks should start preparing by leveraging the infrastructure and data formats they already have in place to feed their central intraday liquidity transaction database.”

Something that will benefit the banks is that the deadline of January 1, 2015, is not, apparently, set in stone.

Limburg says: “Although the BIS [Bank for International Settlements] has set January 2015 as a starting date for intraday liquidity reporting, the guidelines allow national regulators to phase in implementation up until 2017.

“This time will allow them to publish their own requirements for intraday liquidity reporting and for banks to be able to comply with them.”

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