Leading global bank: optimising intraday liquidity management

The Challenge

Many banks have lost focus on the importance of managing their intraday liquidity; near-zero interest rates in the last decade have meant liquidity management has been overlooked. However, recent increases in interest rates reveal that there is now a strong business case for banks to optimise their ILM and supporting processes in a way that delivers potentially significant financial upside. Indeed, innovative financial market infrastructures (FMIs) that make use of distributed ledger technology (DLT) are also gaining traction. This presents an exciting opportunity for banks to refresh their technology architecture, enabling leading financial markets offerings for customers and clients.

Our client had been hindered by both the lack of real-time transparency for funding requirements and lack of time zone management for intraday liquidity. In addition, the bank has no netting and liquidity offsets for internal and intragroup transactions. These challenges resulted in time consuming and costly transaction processes and inefficient ILM practices – processes that have a large opportunity cost associated to them. So, our team of wholesale banking experts were brought in to help define the future ILM operating model and develop a business case for the implementation of an ILM hub that would host all internal and external accounts for banking divisions.

The Approach

The approach was divided into two primary workstreams for the operating model and the business case. Our experts worked closely alongside the treasury, cash management and funding desk teams, delivering on both the operating model and business case.

With regards to the operating model, our tailored approach was as follows:

·      Define a list of payment scenarios, operating model scope and guiding design principles to accelerate the solution design process

·      Develop a high-level solution design for the ILM Hub to socialise with key stakeholders and guide our iterative design process

·      Create target process flows for selected payment scenarios to test and refine the solution design requirements

·      Design the future, high-level funding trade activities and operating model requirements for more efficient treasury operations

When developing the business case, our approach consisted of:

·      Building a business case framework and modelling approach to form the foundations of our business case

·      Sourcing data and conducting initial business case analysis to identify drivers of the business case

·      Modelling the data and assessing qualitative benefits to articulate the business benefits of the ILM hub

·      Summarising and consolidating outcomes into the business case to socialise a clear and consistent message to key stakeholder groups

·      Establishing an implementation plan to deliver the target operating model and achieve the business case benefits

The Impact

We delivered a set of guiding design principles, funding trade capabilities and priority activities, and the change requirements and specific actions necessary to help our client deliver the operating model changes. This provided them with a clear understanding of what the future ILM hub operating model would look like, and how to get there. The business case outcomes revealed significant quantifiable and qualifiable benefits that could be achieved annually with the implementation of the proposed ILM hub. The combination of the future ILM hub operating model and a highly beneficial business case resulted in a seamless pitch and approval process, which ultimately allowed our client to commence the implementation phase for the ILM . Once implemented, the ILM hub is expected to yield annual multi-million dollar benefits that will contribute favourably towards the Group’s annual returns.