Intraday liquidity reporting poses challenge for banks says Swift
New intraday liquidity reporting tools set out by the Basel Committee on Banking Supervision could pose a serious challenge for banks, according to a new white paper by Swift.
In April, the BCBS published tools which require banks to assemble the necessary data to ensure they are monitoring their intraday liquidity risk, and their ability to meet payment and settlement obligations. The BCBS wants banks to start using the monitoring tools for reporting in January 2015, with full implementation by January 2017.
According to the BCBS paper, Intraday Liquidity Reporting – The case for a pragmatic approach, these reporting requirements place demands for data on liquidity flows that will require significant changes to banks’ existing data models.
The tools set out by BCBS require a retrospective view of aggregated data using credit/debit confirmations, but only 20% of correspondent banking payment instructions on Swift are confirmed with a credit/debit confirmation message.
In response, Swift suggests that banks should assess their current reporting coverage, then centralise their data, and finally carry out data mapping between LEIs and the bank’s operational codes.
“To achieve the level of detail required by the retrospective BCBS measures, banks will need to build the intraday position for each of their accounts with real-time credit/debit confirmations, says Catherine Banneux, senior market manager, banking, at Swift. “This is a critical component of the monitoring requirements that will differ according to a bank’s size and profile. Progress needs to accelerate in order for banks to be ready for BCBS reporting.”
The report added that on a daily basis, banks need to manage how much they lend and borrow, how to fund any required additional liquidity at the lowest possible cost and how to ensure they meet their payment and settlement obligations smoothly, whilst limiting their credit line usage. The last financial crisis demonstrated the consequences when this process of managing intraday liquidity goes wrong and banks fail to obtain the funding they need to meet their obligations. The organisation argues in the report that industry practices will inevitably have to change, but that they will be replaced by a more collaborative and standardised approach to intraday liquidity management.
“Banks need to take a pragmatic approach to the BCBS reporting,” said Wim Raymaekers, head of banking and treasury markets, at Swift. “There is a fair amount of uncertainty about the reporting requirements across jurisdictions. While that is being ironed-out, banks should start preparing by leveraging the infrastructure and data formats they already have in place to feed their central intraday liquidity transaction database.”