This breaking news story illustrates perfectly the very real implications of issues discussed by speakers and participants at the recent EBA Liquidity Seminar held in Wiesdbaden, Germany
In particular the situation starkly underlines the following conclusions that were articulated (following much heated debate) at the Seminar
1. All systemic institutions should have an integrated liquidity reporting dashboard, but they need to understand/manage their intraday liquidity peaks & troughs first
2. All banks should reduce intraday liquidity settlements to avoid critical pinch points e.g. CLS & CSD settlement windows, gross syndication settlements, gross reinvestment flows …
3. Settling ‘net’ with key counterparties should be encouraged, as should net settlement systems e.g. Euro1
4. Large customers (corporate, non-bank FIs, government entities etc.) should model/manage their intraday large value items to reduce risk to their financial supply chains
5. More emphasis should be placed of managing positional/trading investments/risks using CFDs (contracts for differences)
The excellent work the TSCL team has been doing recently using the Intraday Liquidity Simulator (ILS) is actively helping Banks and their large customers to isolate and understand their liquidity peaks and troughs and avoid their critical pinch points.