Industry report

Preparing for a New Era of Cash and Liquidity Management

Liquidity Management: Regulators Bare Their Teeth

It is no secret that regulation on both sides of the Atlantic has been one of the primary drivers of operational practices and their supporting technologies across capital markets in the wake of the global financial crisis. In the decade since the crisis, the highest-profile changes have been made to the front and middle offices, but now the back office must fall in line with regulatory mandates—nowhere is this more emphatically illustrated than in the realm of cash and liquidity management. Not only do banks need the capacity to monitor their liquidity in near real time but, crucially, they must be able to provide transparency into the various calculations behind the numbers for regulatory reporting purposes.

Until recently, all but the largest tech-savvy banks administered their liquidity activities manually, which naturally introduced high levels of operational risk, while simultaneously rendering intraday monitoring of these functions virtually impossible. This special report, sponsored by SmartStream Technologies, focuses on the business and operational benefits that banks stand to accrue through the systematization of their cash and liquidity management functions, while also examining the technologies and best practices that firms might look to develop and implement to make such endeavors feasible.

While the development and deployment of liquidity-monitoring tools might be seen by some capital markets firms as a financial burden and an unnecessary cost of doing business, the commercial benefits of making such moves over and above the regulatory implications are clear. In the virtual roundtable section of this report on page 6, SmartStream’s Darryl Twiggs provides some color on these advantages, and explains how banks can enhance their funding decisions and integrate their liquidity management functions with their collateral management practices, while offering the potential for generating higher returns.

As with most technology developments in our industry, this is not a trivial exercise, but in this regard the pain is worth the gain. Additionally, banks don’t have many other options now that they are under the regulatory microscope—as we have seen in recent months, regulators worldwide have jettisoned the softly-softly approach and are now starting to bare their teeth.