Intraday liquidity is critical to the smooth functioning of payment, clearing, and settlement (PCS) activities in the financial markets. Now rising interest rates and the unwinding of quantitative easing will render intraday liquidity an increasingly precious resource. Banks will need to shift from passively measuring ebbs and flows to actively managing and optimizing intraday liquidity usage. Those that invest in building capabilities beyond the bare minimum will be rewarded with improved balance sheet profitability and higher operational efficiencies, while opening up the possibility of new revenue streams. Those that fall behind will find that existing inefficiencies become increasingly costly.
This paper provides an outline for treasurers, chief financial officers (CFOs), chief risk officers (CROs), and chief operating officers (COOs) within financial institutions, who wish to transform their approach towards intraday liquidity management. Our analysis indicates that a 25-50% reduction in intraday liquidity costs is well within reach. Further, banks will also stand to benefit from optimal efficiency, improved risk management, and timely decision-making around this scarce resource.