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Understanding the current regulatory environment for intraday liquidity risk - Bank of England

Ahead of the 6th Annual Liquidity Risk Management Forum Bryan Sweeting, Senior Risk Specialist, Bank of England has provided an overview of intraday liquidity and the challenges which the liquidity industry is facing.

Bryan, can you tell our audiences about yourself and your experience in the banking industry?

I started my career in banking in 1987 working for NatWest in the investment banking division. Early progression was through roles in money markets and foreign exchange. I became head of positioning & collateral management for the wider RBS Group looking after liquidity management. In 2013 I became global head of intraday liquidity in the treasury division setting bank wide policy, process and strategy. I represented RBS on numerous industry committees and groups. My role also included regulatory reporting, so it was no surprise that my career path lead me to join the Bank of England in 2016 as the PRA’s intraday liquidity specialist.

Can you provide an overview of intraday liquidity and the challenges the industry is facing?

Managing intraday liquidity for firms is a complex, critical activity that has become increasingly important since the financial crisis. Firms need to balance the need to hold levels of collateral to make them safe and sound against the rising opportunity cost of holding excess liquidity, all the while considering their client payment proposition. Failure to have liquidity available, and in the right place, gives negative news to the industry and clients and could result in reputational damage. Intraday is dynamic, liquidity managers must control payments to reserve liquidity for time critical and retail payment system settlement obligations. They must also understand seasonal and company flows, have knowledge of ad hoc large value payments and comply with industry rules. The payments clearing and settlement landscape is also dynamic and industry changes are frequent and different across multiple currencies.

How has the current regulatory environment had an impact on intraday liquidity risk and preparing for the future?

Regulation has led to firms having a much better understanding of their own intraday liquidity risk and requirements. As firms analyze their own intraday profiles they get to have a better knowledge of risk drivers. This in turn leads to better policy and controls, which go towards making the industry safer.

What are some of the types of risk (payment system vs securities settlement systems, direct vs indirect) which financial institutions are facing?

All firms have some form of intraday liquidity (IDL) risk. There are numerous risk drivers whether a firm is direct or indirect that could impact the ability to fulfil settlement obligations. For firms that settle indirectly, It maybe the removal of overdraft facilities by a correspondent bank. For direct settlement members the obligation to settle a payment scheme at a specific time. All firms must have control of their IDL positions and this should be considered whatever the operating model.