Sepa Consultancy develops Simulator
The fall of Lehman Brothers in 2008 reminded all participants in the financial services industry of some of the basic banking disciplines and risks – liquidity, funding and intraday credit – that if they hadn’t been completely ignored “hadn’t exactly been at the forefront of our thinking”, said Ashley Dowson, chairman of UK-based Sepa Consultancy.
The January 2015 deadline for the implementation of the Bank for International Settlements Liquidity Coverage Ratio and the reporting requirements for intraday liquidity usage have brought the shorter-term liquidity problem into sharp focus, said Dowson. Sepa Consultancy has launched the Intraday Liquidity Simulator, a liquidity dashboard solution that provides a timeline of events, outcomes and actions in multiple currencies.
Dowson said the initial idea of the Simulator was to create an interactive educational and training tool to raise awareness of critical issues in the management of intraday liquidity. “It soon became very obvious that potential users wanted and needed something much more,” he said. “Most big banks were (and still are) experiencing great difficulty in understanding their own daily data flows and the impact of their actions (or inaction) on their liquidity costs and exposure.”
Legacy systems were unable to generate the appropriate reports, including time stamps, or isolate critical issues. Few banks, he added, were willing to invest in extensive systems change to provide more coherent information.
After the initial development of the product, Sepa Consultancy teamed up with CSC, which was able to scale-up the offering and operate it globally. Among the initial users during the development phase was a US-based Fortune 500 company, which found more than $5 million in savings after modelling its liquidity.
Dowson said major corporates were just as concerned about intraday liquidity risk as banks. Indeed, many of the large corporations in the US are focused on recruiting liquidity risk management professionals for their corporate treasury departments. “Corporates are realising that their intraday risk profiles and flows are not adequately managed,” he said. “There was a tendency for corporates to assume everything was OK and could be settled at the end of the day. But we know from modelling that intraday liquidity flows can be very significant and there is significant risk.”
(An extract from a Swift white paper on intraday liquidity reporting will be published in Daily News at Sibos tomorrow)