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Cash and Liquidity Management obstacles.

In 2008 the great and the good of the banking world were attending SIBOS Vienna with no more thought than for any previous SIBOS or banking trade show. Even as delegates were checking into the conference on the Monday morning shockwaves were sent throughout the assembled bankers as news of Lehman’s and the fall out of the toxic loans hit the news stands. Bankers checked out and went home, other bankers stayed at home as the implications unfolded. Liquidity and Credit risk came under scrutiny and the Regulators ran to the rule books for guidance.

In the immediate aftermath the BIS rushed to print its enhanced 'Principles for Sound Liquidity Risk Management and Supervision' which laid out 17 fundamental principles for the management and supervision of liquidity risk. At the heart of the dictum, the main principle stated 'A bank should 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'.

The implications were that legacy systems would need to analysed, broken down, re-engineered and real time become the modus operandi of choice.

So where are we 18 months on?

The FSA, who originally picked up the BIS gauntlet and prepared to beat the banks with it, tempered their approach in the face of an election and a realization that foreign banks in London were looking to their own National regulators for guidance. The original regulatory requirements have been watered down and the emphasis has been on ‘end of day’ and ‘weekly’ reporting rather than on the liquidity issues at the heart of the problem.

I suspect all regulators will revisit the intra day liquidity requirements some day soon.

Some banks have decide to plough a lonely furrow and are taking the matter into their own hands and are adhering to the principles more closely, for these banks the days of a predictive end balance, a balancing loan or deposit and sit back for an end of day reconciliation appear numbered, even for out of hours currencies. But, they are finding out that many of their nostro banks are unable to offer a timely service, so many banks are literally unable to provide real time, probably due to a legacy book keeping system out of synch with payments notification engines. I hear many stories of banks only being capable of producing hourly updates and even these don't contain all the days items, book transfers are left until the end of day causing massive issues for real time liquidity management and projection. These inefficiencies may force banks to re-examine their SLA's and decide to take their business elsewhere.

You cannot manage what you cannot see and so the path to true real time cash and liquidity management will remain a rocky one.




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