It does not leave a live dragon out of your calculations if you live near him. With apologies to JRR Tolkien, the dragon in this scenario is bank failure. The calculations start with building a business case for real-time treasury.
Top 5 Enemies of Bank Liquidity
Banks rely on liquidity to ensure they can meet their short-term financial obligations and continue their operations smoothly. Here are the top five enemies of bank liquidity (think five seething dragon babies 🐲):
🐲 1. Sudden withdrawals by depositors A rush of withdrawals can deplete a bank’s available cash and liquid assets. This can be triggered by rumors, financial panics, or loss of confidence in the bank’s stability.
🐲 2. Asset quality deterioration A decline in the quality of a bank’s assets, such as loans that are not being repaid, can erode the bank’s liquidity. If the bank cannot sell or use these assets to secure additional funding, it may face liquidity problems.
🐲 3. Funding mismatches When a bank’s liabilities (deposits, borrowings) mature more quickly than its assets (loans, investments), it can create a liquidity gap. If the bank cannot roll over or replace these short-term liabilities with new funding, it may face liquidity issues.
🐲 4. Market disruptions Economic or financial market disruptions can make it more challenging for banks to access funding or sell assets. For example, during a financial crisis, interbank lending can freeze, and asset markets can become illiquid.
🐲 5. Regulatory changes and requirements New or more stringent regulatory requirements can tie up a bank’s liquidity. For instance, capital and liquidity regulations, like Basel III, may necessitate banks to hold more high-quality liquid assets to meet regulatory standards, reducing their liquidity availability for other purposes.
It’s worth noting that a combination of these factors can exacerbate liquidity problems for banks. Banks typically manage their liquidity risk through prudent risk management practices, including maintaining an adequate reserve of liquid assets, stress testing, and contingency planning. Additionally, central banks often act as lenders of last resort to provide emergency liquidity to solvent but illiquid banks during times of financial stress.
The Business Case To Implement A Real-Time Treasury Solution
If you want to be rid of the dragon and its extended family, there are tangible benefits of implementing a real-time treasury solution:
⚔️ 1. Reduced manual effort Remove those significant manual, time consuming processes and touch points like collating funding numbers via excel and, in turn, reduce your risk of error. Redeploy effort to things like initiatives, as well as reducing your risk rating.
⚔️ 2. Improve BCP capabilities Flexible online views of data enable users to process their day-to-day tasks no matter where they are based, which is even more critical in a BCP scenario.
⚔️ 3. Greater business accountability Having the ability to produce MIS reports daily and seeing how functions are performing will drive accountability, improve behaviours and/or liquidity usage.
⚔️ 4. Increased visibility As a result of greater visibility, funding improves which invariably will generate a cost save whether by reduction of long or short balances at correspondent, counterparty claims as a result of fails or operational errors.
⚔️ 5. Enhanced control effectiveness Having access to intraday data and funding to actuals increases transparency, reduces manual intervention, increases controls, enables for greater monitoring, and forecast of cash requirements – which results in an enhancement to the overall control effectiveness of the function.
⚔️ 6. Regulatory /franchise impact Regulators can see there are adequate controls in place to manage the firm’s liquidity, and reputational risk decreases as a result of better funding decisions – whether this be agent bank or counterparties.
Make decisions and take action with a real-time liquidity understanding
You can make incredibly accurate forecasts of your real-time liquidity usage using intelligent tech. Imagine the power that knowledge gives you.
Realiti is the only liquidity intelligence solution to deliver real-time, enterprise-wide 360° visibility of a firm’s liquidity landscape, control over treasury activities and value-creating insights, in a single platform. Realiti provides an invaluable liquidity lens, providing dynamic real-time insights across assets including cash, securities, and CBDCs.
Acknowledged as the best-in-class solution for regulatory confidence, the outcomes for Planixs clients speak volumes – millions in savings on intraday liquidity buffer costs, ensuring compliance with the BCBS248 regulatory agenda, and fostering efficient and effective funding operations.
Real-time liquidity management is a gateway to transforming your operations and untapping opportunities for growth. You will get a goldmine of actionable insights that will allow you to be a change-maker in your organisation.
