Intraday Liquidity Risk Management

Alan Ball and Gamal Bemath

Financial institutions require access to liquidity during the business day in order to settle their obligations in payment and security settlement systems. Failure by a bank to manage its intraday liquidity requirements effectively, leaving it unable to meet payment obligations continuously throughout the day, would have serious implications for the bank’s own liquidity position and for the liquidity positions of other parties in the payment and security settlement systems. Given the interdependencies that exist between payment systems and the parties to those systems, one bank’s failure to meet its payments could lead to liquidity dislocations that cascade quickly across many financial systems, institutions and the broader economy. If a bank were to experience a credit concern or there is a more general market stress, its counterparties may view its failure to settle payments when expected as a sign of financial weakness and, in turn, withhold or delay payments to that bank, compounding its liquidity pressures. In such circumstances, counterparties to that bank could unexpectedly be left short of funds, impairing their ability to meet payment obligations and further disrupting the