The opportunities that Real-Time processing brings and the impact on liquidity risk

The opportunities that Real-Time processing brings and the impact on liquidity risk

By Gary Manning, Director, Planixs

Gary, can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?

I’m extremely lucky. I had a career in Banking lasting 40 years. Now I’m enjoying a second career, working with some incredibly smart people and using the latest technology that Planixs has developed for Banks to manage their Intraday Liquidity Risks in Real-Time.

 Can you give a brief description of what are the main intraday challenges?

Over the past 20 years banks have evolved often through takeovers and mergers to have structures where today they use so many legal entities around the world to book their business. Typically each entity has established multiple Correspondent Bank relationships, some based on best service and many based on reciprocity. It’s never one cash account its 10’s and often 100’s at the same Correspondent Bank in the same currency. Technology has opened up the global markets, leading to huge volumes of transactions each day, often many millions a day.

Some of the attendees of LRMUSA 2018 might work for firms with simpler operations than I have seen elsewhere but the intraday challenges still apply. Their risk focus may be more regional than global but the complexity is still the high daily payment volumes and huge values settled over different clearing venues and indirectly through Correspondents. To monitor Intraday Liquidity, minute by minute each day requires ‘big data analytics’. What I see when now looking in on most Banks, is the internal IT supporting Intraday Liquidity, Cash Management, Funding & forecasting isn’t yet good enough.

 What are some key considerations that need to be made when using real-time processing?

 Most banks didn’t design and build their settlement and support operations for real-time but Banking has evolved that way. Instant payments are here, supported by real-time messages over secure networks, using good data based on quality data standards. Banks need to adapt more quickly to new technologies. Enhancing the Bank’s Regulatory compliance and reporting, based on actual and validated intraday movements, is what Regulatory regime is striving for.

Confirming settlement in real-time across global markets and matching within seconds, leads to real accuracy in funding and forecasting, it reduces costs and improves controls. Efficient Intraday Liquidity monitoring requires Business, Treasury, Operations, Risk & IT to work together. The broader business benefits of moving to Real-Time are compelling. Clear accountability needs to be assigned as it just won’t happen and Banks will fail to achieve the broad set of regulations.

 How can you check that your organization is benefiting from real-time?

I would establish who is responsible for Intraday control and then ask:

  • IDL: Who monitors all the Clearing and Correspondent bank balances as they build minute by minute throughout the day?
  • Exceptions: Who gets alerted when Intraday issues arise such as Correspondent Bank credit lines being breached or additional margin calls being required intraday?
  • Funding: Are the intraday balances used to refine the daily currency funding decisions and forecasts and are large funding swings explained?
  • Accuracy: Who compares the funding forecast to the total cumulative balance by currency and by legal entity, across all clearing & nostro accounts at yesterday’s close of business?
  • Costs: Are the IDL costs substantiated and accurately allocated to business?
How do you see the intraday liquidity risk landscape evolving over the next 6-12 months?

Gently gently the global regulators are skilfully moving banks towards a world of intraday control, through the supervisory process and increasing levels of reporting requirements. The journey started with the 2008 Sound Principals, then BCBS 248, followed by Stress Modelling. Here the Fed is using pressure such as Resolution planning and Reg YY, which is very similar to the Sound Principals. We are hearing that OSFI in Canada are now turning their attention to Intraday.  The UK PRA is a good example and there is some very interesting publicly available information on their views – they have just defined the next stage of the journey with Pillar 2 SOP. The statement of policy makes perfect sense and will no doubt be picked up by other regulators hence gradually impacting banks all over the world.

Informal Questions(Disclaimer: We are collating several informal interviews with our presenters for a feature in our Risk Insights Magazine and we may include in the online piece. Please feel free to ignore, if you do answer please make clear if you do not wish for us to publish your name with the answers)

 Please share with our audience why they would benefit from attending Liquidity Risk Management USA 2018?

Coming from the UK and with an background in Operations, I may have a different perspective on Risk, particularly Intraday.  The LRMUSA agenda provides quite a broad perspective on Risk. I’m sure the conference will provide all attendees a great opportunity for learning, sharing and networking.

What three items would you take with you if you were stranded on a desert island?
  1.  A machete, that’s my practical side speaking.
  2. A hammock, as I’m getting on and need some comfort.
  3. A comb, after all I’ve got great hair!
If you had not taken the career route to become a financial risk professional. What would you be doing right now?

 When I left school, I was offered an apprenticeship to become an Architect but I chose a career in Banking, an found my niche in Operations. I can truly say I’ve had a wonderful career but I still have a passion for Architecture.

 What has been the highlight of your career so far?

I never imagined my career would take me to so many places – 98 countries so far. I’ve learnt so much from the people I’ve met and worked with, spending time in places most people can only dream about.  But the real highlight has been the constant change. Some people like change, some don’t, I love it.


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