Intraday Liquidity Operations and Monitoring

Intraday liquidity is the cash a bank has available to settle payments during the working day, as distinct from the cash it holds at the end of the day. A bank may start the day with 80 million euros in its T2 account, but if it releases 60 million euros of customer payments by 11 in the morning and only receives 20 million euros in return, the balance falls to 40 million euros and the team must watch the next hours carefully. The liquidity team tracks every large payment in and out, because a single payment of 25 million pounds through CHAPS can change the position in seconds. The goal is never to run out of cash in any currency during the day. Liquidity forecasting starts the evening before, when the team builds a forecast of the next day based on known payments. The forecast includes standing orders, direct debits, corporate files already received, and the expected value of payments from large customers. A corporate customer such as a supermarket chain may pay 90 million pounds to suppliers every Friday, and the bank knows that pattern from history. The forecast also includes expected receipts, such as 45 million dollars arriving from a correspondent bank in Singapore. The team compares the forecast with the opening balance and decides whether to borrow, move funds between accounts, or warn the business that a large payment may need to be delayed. Monitoring during the day is done on a live dashboard that shows the balance in each nostro account and each clearing account, updated every few minutes. The dashboard shows the US dollar account with JPMorgan Chase, the euro account with Deutsche Bank, the yen account with MUFG Bank in Tokyo and the sterling settlement account at the Bank of England. Each account has a minimum balance and an alert level. When the euro account falls below 10 million euros, an amber alert appears and the team checks the queue for incoming euro payments. When it falls below 5 million euros, a red alert appears and the team must act immediately by moving funds or delaying low priority payments. When a currency runs short, the team has a set of tools it can use in order. First, it can move funds from another account in the same currency, for example from a branch account to the settlement account. Second, it can borrow intraday from the central bank, which in the United Kingdom means using the Bank of England intraday liquidity facility against eligible collateral. Third, it can delay low priority payments, such as bulk low value payments worth 200,000 pounds, while protecting urgent customer payments. Fourth, it can ask a correspondent bank for a short term overdraft. Each action is logged with the amount, the time and the person who approved it, because liquidity decisions are reviewed by risk management and by regulators. A real example shows why this matters. At 20 past 2 in the afternoon on a busy Tuesday, a bank in London notices its US dollar nostro account has fallen to 3.1 million dollars, while a queue of 42 customer payments worth 18.7 million dollars is waiting for release. The liquidity manager calls the treasury desk, which sells 15 million euros for US dollars in the foreign exchange market and instructs the settlement of the dollars to the New York account. The dollars arrive at 5 past 3 in the afternoon, the queue is released in priority order, and the largest payment of 4.5 million dollars to a supplier in Texas settles before the Fedwire cut-off. Without that intervention, forty two customers would have missed their value date and the bank would have faced claims and reputational damage.