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LM-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