• Preparing for real-time liquidity

October 2018

With instant domestic payments, faster cross-border payments and technologies such as open Application Programming Interfaces (APIs) becoming more prevalent, treasurers have increasing access to “real-time” functions. Yet, when it comes to creating a new real-time liquidity framework, industry collaboration will be crucial

So far, the payments space has been the first to start to upgrade to “real time”, with instant domestic payment schemes joined by SWIFT’s global payments initiative (gpi), accelerating payments across the globe. While the payments space has been first to benefit, Deutsche Bank’s latest white paper, “Preparing for real-time liquidity” outlines that there is great potential to be unlocked in real-time capacity being applied to liquidity management.

“Real-time clearing and settlement mechanisms, which will become quite distinct from the familiar territory of cut-off times, end-of-day processing, and periodic updates to intraday liquidity positions, will have a fundamental impact on liquidity and collateral management,” says Vanessa Manning, Head of Liquidity and Investment Solutions, Global Transaction Banking, Deutsche Bank, in the introduction to the paper. “For example, the way that banks calculate their intraday liquidity buffers is currently based around end-of-day batch processing, and does not necessarily reflect the different risks associated with real-time flows and dynamic intraday liquidity due to the speed of liquidity changes and associated counterparty exposures.” 

It is therefore crucial that all industry players – from banks to regulators, corporates to clearing houses – understand the implications of these emerging risks and how best to face them. Only then will the industry be able to collectively define new standards and best practices, thereby shaping and realising the next generation of liquidity and collateral management. 

The first step in doing this is industry-wide conversation – be it through forums, advocacy or continued dialogue with regulatory bodies. Accordingly, this white paper is built on a number of insightful conversations with experienced industry professionals. These are: Sandra Laielli, Chair, Liquidity Working Group, Bankers Association for Finance and Trade; Philip Stewart, Global Head of Cash and Banking, British American Tobacco; Hays Littlejohn, CEO, EBA CLEARING; Christian Mnich, Senior Director, Solution Management, Working Capital & Treasury Management, SAP; and Harry Newman, Head of Banking, SWIFT.

We look forward to engaging further with the industry on this important topic.

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