FNA roundtable event summary (9 December 2020)

Our Intraday Liquidity Optimization roundtable series kicked off last week with the inaugural event, hosted by FNA’s President, Phillip Straley.

We covered a diverse range of topics including:

  • Recent trends in the industry impacting intraday liquidity
  • Developments in the regulation of intraday liquidity
  • The opportunities and difficulties created by recent liquidity innovations
  • The optimization of intraday liquidity using analytics and simulation

The discussion was driven by presentations and panel contributions from Deutsche Bank, HSBC, the European Central Bank and FNA. 


Intraday liquidity optimization has become increasingly important since the 2007-8 financial crisis. The market has evolved rapidly with the introduction of challenger banks, challenger FMIs and the movement to faster payment systems, in addition to greater expectations from regulators on intraday liquidity measurement, monitoring, reporting and reserve requirements.

Discussion 1

The webinar began with a presentation on opportunities and threats to the management of intraday liquidity. Our panelist discussed the challenges of managing intraday liquidity using antiquated technology, as well as how the recent digitising of the money supply chain has made the task even more challenging.

  • BCBS 248 intraday liquidity 2013 challenge has for the most part been solved with processes and technologies that have been around for at least 3 decades, still leaving many banks having to play intraday liquidity Jenga
  • From his perspective, the system is a funnel that has become increasingly wide with additional e-commerce systems online, Coronavirus, new Digital Assets and changes in China, thus adding pressure to intraday liquidity management.
  • With regards to Chinese innovation, our panelist highlighted that whilst Banks have been trying to solve intraday liquidity China has been building core infrastructure to have Retail Central Bank Digital Currency in circulation today. The core  components are  Belt and Road Initiative, China Chain/BSN and Digital Yuan therefore providing a network, store of value and a cross border route to market
  • In the transition to Wholesale and Retail CBDCs, and other Token and Account based digital assets, Commercial Banks face a number of challenges not least connecting to 60+ CBDC’s who are assess different models i.e. Domestic, Wholesale, Token or Account Based,
  • CBDC will present the emergence of new tradable assets, competitors, changes required to Risk, Liquidity, Operations, Technology and challenge traditional Business Models
  • The presentation finished with an eye to the future, with a perspective on managing intraday liquidity in the new digital assets world. Our panelist emphasised CBDCs and GSCs on the horizon in some cases in production today, with their potential to speed up payments and transparency, the emergence of a new asset class, and the opportunities and threats that a transition to CBDCs and GSCs will present.
  • Questions and comments from the audience covered the benefits of having a digital currency to the world economy, and what was driving these changes. As an example our speaker highlighted China’s desire for a ‘back-up’ to Ali and Ant payments infrastructure where over 95% of payments are processed as well as the impact of COVID-19 increasing the demand for digital and a more effective way of controlling monetary policy.  

Discussion 2

Our second panelist covered emerging trends and developments in intraday liquidity management for banks. He stressed that in his opinion, much more could be done to meet the spirit, not just the letter, of the BCBS 248 regulatory requirements.

  • A key emerging trend is 24 hour payment windows and real-time payments. This will likely result in increased volatility, thus driving up costs for banks that are less efficient and slow to react. In order to predict and manage this emerging risk, intraday liquidity system capabilities will be critical for meeting regulators’ demands. However, optimising operations and stress buffers will be increasingly essential to minimise risk and costs. 
  • Our panelist also highlighted the limitations of current stress models, such as their backward-looking data, and emphasised the necessity to build in the capability to flex operation functions in a short time frame. 
  • In order to effectively optimise intraday liquidity, there is a need for greater transparency. If businesses and individuals are able to understand the impact they have on intraday liquidity, shifting payment timings, for instance, could result in significant differences for the bank as a whole. 
  • Questions and comments from the audience led to a debate regarding the topic of increased transparency: the challenges, the logistics, and the successes of facilitating discussion internally with banks’ business units. A conclusion was reached that full transparency is not likely possible for most banks at all times, but that more active engagement and influencing of business behavior is possible. 

Discussion 3

Our third panellist focused on intraday liquidity from the perspective of Financial Market Infrastructures (FMIs) oversight. He presented the topic in its wider context, with the failure of one participant to fulfil their payment obligations endangering the liquidity of the recipient and leading to knock-on effects in the network. 

  • Participants could be negatively impacted by assets not arriving on time, liquidity sources, correspondent banking, or by liquidity conflicts arising from the participation in multiple FMIs.
  • He also highlighted how FMIs provide support, such as the design considerations to level liquidity needs and risks between RTGS, hybrid and DNS. Design choices also included liquidity saving features vs complexity, and defaulter pays vs supervisor. 
  • Our panelist finished with the developments in the euro-area RTGS as a backbone system, and some emerging trends, such as instant payments, instant cross-currency, enhancing cross border payments, and the first movement into same day settlement for FX. 

Discussion 4

Our panellists from FNA closed the webinar with a presentation on combining simulations and network analytics in order to optimize intraday liquidity. 

  • It began with a historical perspective of the key developments, from the Bank of Finland’s first simulator to assess the impact on the liquidity of Finland joining TARGET in 1999, to the Bank of England’s 2013 introduction of new liquidity saving mechanisms in CHAPS (designed with FNA Simulate). 
  • The panelists highlighted how analytics-driven liquidity optimization could help financial institutions map and monitor complex financial networks, as well as to simulate operational and financial risks. This method drives in the range of a 25% reduction in intraday liquidity reserves and a 40-90% reduction in payment delays. 
  • The approach is split into 3 pillars of activity: simulate, optimize and stress test. 
    • Simulate: creation of a digital replica of the bank’s operating environment with the ability to tune operational usage to understand choke points and critical participants, thus achieving lower liquidity and reducing delays. 
    • Optimize: works with a bank’s existing operational systems to inform payment systems to execute in such a way to minimize the Largest Net Negative Cumulative Position. 
    • Stress simulations: used to model events such as bankruptcy or cyberattacks, and configure how to best minimize impact.
  • Questions and comments from the audience included a ‘build vs buy’ debate, with our final panelists stating that outsourcing was often found to be faster, cheaper, and more effective (due to the need for a combination of subject matter expertise, technical/data science and engineering skills). The other key benefit of the “buy” approach is the ability to share insights and ongoing technology enhancement costs with other financial institutions.   
  • When discussing the reduction of individual impact on collective liquidity usage in central banks, participants emphasized that any improvements made will need to take into account that optimizing one part of the system creates demands upon another.

Thank you to our incredible panelists and all who attended! If you enjoyed the discussion, or missed out on this week’s event, please join us at the second ILO roundtable taking place in March 2021. Follow FNA on LinkedIn to avoid missing out. 

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