Survey: Data management issues delay liquidity risk progress

Brussels - 18 August 2011

New SWIFT white paper argues collaborative solutions are needed to resolve underlying data problems and enable compliance with forthcoming regulation on liquidity risk management.

Critical data management issues continue to impede the successful development of effective liquidity risk management strategies – and most of these issues can only be resolved through collaborative solutions, according to a new white paper from SWIFT, the financial messaging provider for more than 9,700 financial institutions and corporations in 209 countries.

The findings of the white paper “Managing liquidity risk: Collaborative solutions to improve position management and analytics” are taken from an in-depth market survey of 40 cash, liquidity and liquidity risk managers at financial institutions around the world. The survey was designed by SWIFT.

Respondents to the research identify six key data management challenges that must be overcome in order to provide management with the information needed to successfully manage liquidity risk and meet regulatory requirements in this area.

Improving liquidity risk management requires a ‘dashboard’ and analytics – both which need to be fed with data. Intraday liquidity management is an integral part of an improved liquidity risk management strategy because insufficient intraday data can lead to late identification of gaps between forecasted and real inflows and outflows and positions. Such gaps would generate substantial financial costs as a result of over-collateralisation, intraday credit line costs, higher funding costs, overdraft charges and higher liquidity buffers. So the business case to invest in real-time management of liquidity goes beyond regulatory compliance and risk mitigation: it can save a bank real money.

Survey respondents indicate they lack: a view on intraday cash position across currencies (93%); ready-made liquidity risk analytics and business intelligence (91%); advanced interactive cash and collateral management functionalities within payments infrastructures (89%); an ability to build predictive positions (88%); an intraday view of unencumbered collateral positions including margin calls (88%); and an ability to manage and report liquidity positions at a firm-wide level (82%).

These requirements were identified and explored in SWIFT’s white paper of March 2010 “Managing liquidity risk in a changed and global world” and subsequent market survey in June 2010, titled “Managing liquidity risk: industry pain points and SWIFT solutions”. However, the current white paper reveals that challenges remain.

The good news is that survey respondents also identify five top-priority collaborative developments that would address these challenges. Some of these could be implemented in a relatively short timeframe. They are: industry best practice for intraday cash reporting; common reporting standards and liquidity monitoring and control standards for use across high-value payments systems; standard margin call solution to support the implementation of intraday feeds in liquidity management applications; industry best practice for collateral reporting for liquidity management purposes; and a central “payment tracker/adviser” platform providing transactional statuses.

Luc Meurant, Head of Banking, Supply Chain and Corporate Markets at SWIFT, comments: “The business and regulatory pressure for financial institutions to improve their liquidity risk management cannot be ignored. The industry has to find solutions to data management challenges and, in addition to internal integration projects, the answer lies in collaboration. Industry-level initiatives to address these issues are already starting to appear. SWIFT stands ready to support our customers in these efforts.”

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