Are banks missing out on the benefits of real-time cash liquidity reporting?

Source: Deutsche Bank

The value of real-time cash-balance reporting is being overlooked by many banks – perhaps due to its regulatory origins, argues a new white paper from Deutsche Bank.

Looking back to 2013, when the concept first gained real momentum through the publication of the Basel Committee on Banking Supervision’s BCBS 248-paper, the report notes that the lack of a common regulatory mandate may have put the brakes on full-scale industry adoption, with only a few banks - typically the very largest - bound by regulation under individual mandates.

And while one fewer regulatory obligation will generally be taken as something to cheer about for banks, the resultant neglect of real-time cash liquidity reporting has left considerable efficiencies on the table. Fortunately, while adoption has been underwhelming, the industry has not stood still.

“While momentum has faltered in recent years, the excellent work of the Liquidity Implementation Task Force - with support from SWIFT - has led to the publication of its Global Market Practice Guidelines, outlining a strong, common framework for real-time reporting,” says Christian Westerhaus, Head of Cash Products, Corporate Bank, Deutsche Bank. “Why does this matter? Because, while real-time reporting may not be a mandatory exercise for most banks, it is certainly a beneficial one.”

Advantages of real-time reporting range from the originally stipulated boost to stability in stress scenarios, a clear view over incoming and outgoing flows, giving complete control over intraday cash positions, and the necessary data to build and test strategies for managing and optimising liquidity at all times throughout the day. These are clear to see in the paper’s central study, which compares the intraday cash positions of two groups of banks - one using real-time cash-balance reporting and the other not. While the patterns exhibited by the non-user banks are seemingly random (with long periods of over- and under-funding on the accounts), the user banks exhibit far more ordered and consistent patterns, with fewer and shorter periods of over- and under-funding.

“While many market participants are rightly placing high priority on larger and more impactful programmes, such as the impending migration to the new global messaging standard of ISO 20022, this is a relatively small, but still important issue that can be fixed today,” adds Westerhaus.

“The banking industry is often chided for failing to act until its hand is forced, conscious perhaps of the complexity and disruption of implementation projects. This is one switch that can be made swiftly and cleanly, while yielding immediate results.”

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