Your liquidity data can be turned into knowledge

There is more to things liquidity than just today. Well today, right now, there isn’t. Sorting out today’s business is foundational. Has to be done. I preach about the value of good intraday liquidity management. This week is about the bigger picture.

If you are using robust tools to manage intra-day, then over time you have a big pool of data. But that it is all it is. With the right analysis, you can look at the past and gain insights which turn that data into knowledge, which makes things actionable. Some years back I worked with some very capable folks at Nomura who did just this. They had the knowledge and the tools to more precisely control the flow of payments.

What would you look at? As ever, ten different banks, even if they all have the same systems, will do things at least 11 different ways. That said, here are three evergreens that I would recommend you look at:

The Bankers’ Plumber’s Handbook is about how investment banking works, how to do operations?properly and keep control.?

The book tries to make it easy for you and includes a collection of real-life, true stories from 30+ years of adventures in banking around the world. True tales of Goldman Sachs and collecting money from the mob, losing $2m of the partners’ money yet still keeping my job and keeping an eye on traders with evil intentions.

So, you might like the tool kit, you might like the stories, or you might only like the glossary, which one of my friends kindly said was worth the price of the book on its own.?Or you might like all of it.

Go ahead, get your copy! https://lnkd.in/eac5zWBD

Timing - who loves you, who doesn’t? In general, the way we send payments to payment systems and Nostros is “fire & forget’; we don’t specifically dictate when to pay which counterpart how much. So, you’d expect that broadly, any counterpart would not consistently pay you any later than you pay them. But do they? If they do, is this a function of their Nostro doing things a particular way, or is it your counterpart throttling payments to you? Well, if you can map debits & credits over time, by day, you’ll find out. And you can then ask the question.

The intraday limit – if you use a Nostro, then they will normally work with an intraday credit limit. They use it to move payments downstream into the outside world. Often, they have throughput targets to meet for volume and value. Intraday is both the enabler and the Achilles heel of wholesale banking settlements & payments. The Achilles heel, because there is not normally a charge for it, but it drives the intraday liquidity buffer calculations for both the credit taker and the credit giver. If you have enough historical intraday data, you ought to be able to “read the tea leaves” and divine exactly what your “unadvised, uncommitted” intraday limit is with each Nostro. Have the conversation internally; “if we halved this limit what is the impact on our overall use of intraday overdrafts?” You might then have the informal chat with your regulator: “Are we right in thinking that if we could reduce our use of intraday credit by 20%, that a reduction in the intraday liquidity buffer might be possible?”

The many left hands aka inter-company.? Big places only have left hands. And any one left hand does not know what the many other left hands of the firm are doing. Are you moving money between group companies gross or net, how many payments in each currency per day, is it moving in the real-world or between two discrete Nostros? If the expected answers are not obvious to you, please call me. I have done my 10’000 hours on things inter-company. For more, see my 2023 Christmas gift post.

So, there is value, but you need the right tools to deliver both those foundational capabilities and the basis for easily looking at data about the past and gaining insights. Easily is an important characteristic. If you have to cobble data together in a spreadsheet every time you have a question, then you need a better tool.

Thanks for reading.

If you would like to talk more about things liquidity, please just type: “Can we talk?” into the comments box.

I am a long-time and long-in-the-tooth hawk on matters of liquidity. I work closely with a great team of people at Planixs where I am the Liquidity Futurologist. Planixs is in the business of making sure FS firms can avoid what happens when liquidity dries up aka the right tool set. I hope that together we can make liquidity sexy.?

Please feel free to get in contact: https://www.dhirubhai.net/in/bankersplumber/ and [email protected].

Liquidity matters. I recently taught a course on Intraday Liquidity Management, or as I prefer to title it: Real-Time Liquidity Management. The materials are available here.

If you are interested in matters of liquidity, the materials are available to download. It’s a lot cheaper than the course and you can go at your own pace. This was 10 hours of teaching and 130 slides.

Now it’s not the same as listening to my dulcet tones for a few hours and not as interactive as covering the materials with your fellow students, but it’s a pretty good set of materials. In particular, it shares some views on how important operational capabilities are; those are the things which drive your ability to manage your business today, making you ready for any storms and disruptions. Tuning those capabilities is a valuable thing across the board in wholesale banking, for sell-side to buy-side to corporates.

If you’d prefer to have me come and talk about real-time liquidity management to you and your team, or to your clients. please just get in contact.

Click here for the materials.

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