Deutsche Bank’s new white paper explores the potential creation of a new real-time liquidity framework, citing industry-wide collaboration as essential to success

Banks and corporates alike stand to benefit from real-time liquidity management functionality, but, industry-wide collaboration will be crucial to ensure effective implementation, according to a new Deutsche Bank’s white paper entitled “Preparing for real-time liquidity”.

The paper – which includes insight from Sandra Laielli, Chair, Liquidity Working Group, Bankers Association for Finance and Trade; Philip Stewart, Global Head of Cash and Banking, British American Tobacco; Hays Littlejohn, CEO, EBA CLEARING; Christian Mnich, Senior Director, Solution Management, Working Capital & Treasury Management, SAP; and Harry Newman, Head of Banking, SWIFT – argues that a standardised real-time treasury framework would enable banks to provide a range of value-added services. These include, real-time currency conversion and hedging, instant cash concentration solutions, intraday cash pooling and optimised short-term investments.

These developments come on the back of significant momentum for application programming interfaces (APIs) and real-time payments, which have proliferated worldwide – prompting a knock-on effect for liquidity.

“Real-time clearing and settlement mechanisms, which will become quite distinct from the familiar territory of cut-off times, end-of-day processing, and periodic updates to intraday liquidity positions, will have a fundamental impact on liquidity and collateral management,” says Vanessa Manning, Head of Liquidity and Investment Solutions, Global Transaction Banking, Deutsche Bank. “For example, the way that banks calculate their intraday liquidity buffers is currently based around end-of-day batch processing, and does not necessarily reflect the different risks associated with real-time flows and dynamic intraday liquidity due to the speed of liquidity changes and associated counterparty exposures.”

Consequently, if the industry is to reap the benefits of real-time liquidity management, banks will need to transform their clearing and settlement architecture, help corporates develop their own real-time-ready systems, and collaborate with TMS and ERP vendors to ensure complete end-to-end efficiency of operational processes.

“The first step to achieving real-time liquidity capabilities will be industry-wide conversation, be it through forums, advocacy or continued dialogue with regulatory bodies”, says Manning. “Only then will the industry be able to collectively define the standards and best practices that will shape the next generation of liquidity and collateral management.”