LM-7.1 LM-7.1 Overview
LM-7.1.1
Intraday liquidity risk management is an important component of a bank's broader liquidity risk management strategy. Banks must actively manage their intraday liquidity positions and risks to meet payment and settlement obligations on a timely basis under both normal and stressed conditions, and, as such, contribute to the smooth functioning of payment and settlement systems.
August 2018LM-7.1.2
Aside from direct participation in payment and settlement systems, banks may incur intraday liquidity risk through their provision of correspondent and custodian banking services. Where a bank relies on other correspondent or custodian banks to conduct payment and settlement activities, operational or financial disruptions at those banks will also affect the bank's own liquidity position and should have alternate arrangements in place to ensure it is able to meet its obligations.
August 2018LM-7.1.3
A primary objective in intraday liquidity risk management is for banks to identify, prioritise and meet time-specific and other critical obligations when they become due, and to settle other, less critical obligations as soon as possible. In satisfying this objective, banks must be aware of, and be able to address, various challenges associated with intraday liquidity risk management.
August 2018LM-7.1.4
A key challenge in intraday liquidity risk management lies in the uncertainty in both the amount and timing of a bank's gross cash inflows and outflows during the day, in part because such cash flows may reflect the activities of its customers or counterparties which are beyond the bank's control, especially where the bank provides correspondent or custodian services. Moreover, the timing of the cash flows may be dictated by the rules governing payment and settlement systems (e.g. payment obligations may be due by specific times during the day). Because a bank's daily gross cash outflows can often far exceed the bank's gross cash inflows at different points of time during a day, or its net overnight balances even under normal circumstances, differences in the timing of its inflows and outflows could result in significant intraday liquidity shortfalls. These shortfalls may necessitate the bank borrowing funds on an intraday basis, prioritizing its outflows to meet critical payments, or borrowing additional overnight funds (if certain expected cash inflows are not received before the end of the working day).
August 2018
