Intraday Liquidity Optimization: A Treasury Manager's Guide

Optimizing intraday liquidity is crucial. Treasury managers want to avoid holding unnecessarily long balances or drawing on credit lines to meet intraday funding requirements whilst maintaining throughput levels and ensuring that high-priority obligations are met. 

However, many treasury teams are limited in their ability to optimize intraday liquidity because they don’t have access to the treasury management tools required to accurately predict peaks in intraday liquidity demands or easily adjust and automate the timed or scheduled release of outbound funds. In this blog post, I’ll explain how the latest technological advancements offer treasury teams the tools and capabilities needed to take intraday liquidity optimization to the next level.

A seemingly endless series of recent events have created market volatility, the failure of various firms in 2023 and the inevitable increase in regulatory focus have all heightened the need for enhanced intraday liquidity management. The normalisation of higher interest rates has provided further impetus for firms to minimise suboptimal intraday funding choices, with the pressure firmly on to reduce borrowing costs and increase financial efficiency.

Furthermore, active intraday liquidity management will be key with a move from T+1 to T+0 clearly on the horizon. Banks keen to optimize intraday liquidity now need, more than ever, a clear real-time view of payables and receivables and the speed and flexibility required to rapidly adjust strategies and stabilise intraday liquidity flows in response to changing conditions.

Robust Intraday Liquidity Management: What Treasury Teams Need to Know

To create and execute effective intraday liquidity management strategies on an enterprise-wide basis, treasury teams need a good understanding of the following elements:

Outbound Obligations: Which payments are critical and high priority, and which are lower priority. There is often very little transparency within the bank regarding how and by what time most obligations must be paid. However, critical payments, such as those to CLS or those required to FX onshore obligations, which must be made by key cut-offs regardless of fund availability, can often be more easily identified as such.

Inbound Commitments: Stabilising liquidity flows requires being able to accurately estimate the timing of inbound payments. However, predictions are generally made using historical averages, which fail to account for the behaviour of specific counterparties, liquidity spikes or how inbound receipts may have been affected previously by market events. Furthermore, this general approach doesn’t allow the timing of specific, individual payments to be accurately predicted, and if they’re large, these payments could significantly impact balances. 

Intraday balances: Some banks start the day having sourced the funds required to cover a set amount, perhaps 20% of their total payables. They use these funds to pay obligations as they arise while relying on receiving equivalent funds throughout the day that can then be reused. However, there is a risk that funds won’t be received and balances will be depleted – hence why being able to predict and stress the timing of inbound payments is so critical.

Available Intraday Funding: These include credit lines, which generally require the backing of collateral. Identifying all available sources of intraday funding requires a view that transcends business silos – yet banks often lack the treasury management tools required to easily access this information – this lack of visibility can be a further cause of suboptimal funding choices.  

Intraday Liquidity Optimization: Equipping Treasury Managers with Vital Capabilities

By continuously reconciling inbound and outbound receipts on a statement vs. ledger basis, banks can start to produce the kind of real-time data needed to understand the current status of outbound commitments, inbound payments, current balances and available intraday funding. This allows treasury teams to better optimize intraday liquidity because they can make informed decisions based on high-quality data. Baton’s Core-Payments® solution features new intraday liquidity management capabilities that allow treasury managers to do just that. 

Using these tools, treasury teams can access real-time information detailing current balances, credit facilities, exposures, and obligations at the individual counterparty, currency, product and legal entity level. With this information, treasury managers can more effectively identify and rapidly reactivate recently reconciled liquidity and proactively adjust capital allocations.

“Treasury teams can access real-time information detailing current balances, credit facilities, exposures, and obligations at the individual counterparty, currency, product and legal entity level”

Intraday Liquidity Optimization: Accurately Forecasting Intraday Funding Needs

Baton’s real-time reconciliation capabilities enable payments to be directly attributed to the sending counterparty. This information can be mapped, using Baton’s new intraday liquidity tools alongside time-stamped historical data and used to build insightful liquidity profiles detailing, for example, the time of day a counterparty typically sends certain payments. Predictive analytics can then accurately forecast the timing of each specific inbound payment, the value of these payments and the projected impact they will have on intraday liquidity flows.

“Use predictive analytics to accurately forecast the timing of each specific inbound payment, the value of these payments and their projected impact on intraday liquidity flows” 

Minimise Intraday Funding Needs with Smart Payment Scheduling

Understanding what the day ahead is likely to demand means treasury managers can implement new payment strategies to optimize intraday liquidity without merely being receipt-reactive. Based on the payment’s level of criticality, treasury managers can quickly identify which payments could be rescheduled to stabilise the day’s liquidity flows and minimise the need to secure external intraday funding. The technology enables a firm-wide view of cashflows, putting them into context for users and eliminating the need to throttle payments based on a lack of understanding of priority.

“Treasury managers can implement new payment strategies to optimize intraday liquidity without merely being receipt-reactive”

Automated Netting and Payment Splitting

Using Baton’s technology, treasury teams can also automate netting processes, such as calculating and affirming netting sets across multiple asset classes and automatically splitting payments according to mutually agreed rules. 

Robustly Stress Test Intraday Liquidity Optimization Strategies

Using historical data, treasury managers can also use stress testing capabilities to assess the projected performance of potential new intraday liquidity optimization strategies. The results allow strategies to then be adjusted and optimized before they are executed in the live production environment.

Reduce Intraday Liquidity Buffers

Managing intraday liquidity in this more efficient manner also reduces the need for firms to maintain inflated intraday liquidity buffers – banks can stabilise intraday cashflows and proactively reassess the size of the costly intraday liquidity buffers held, whilst ensuring that payment throughput obligations aren’t sacrificed.

“Managing intraday liquidity in this more efficient manner also reduces the need for firms to maintain inflated intraday liquidity buffers”          

With continued regulatory pressures to increase financial resiliency, economic pressures to reduce funding costs, and the need to prepare for a T+0 world, optimizing how intraday liquidity is managed is a critical first step for treasury managers keen to future-proof their business.

With access to comprehensive and reliable real-time and historical information and robust controls, treasury managers can react more effectively to emerging issues, build more informed strategies and orchestrate the optimal release of funds. This inspires client and market confidence and helps firms maintain a competitive advantage in a very changing world.

“Treasury managers can react more effectively to emerging issues, build more informed strategies and orchestrate the optimal release of funds”