Are the ECB’s Intraday Liquidity Risk Principles Achievable Before the Next Crisis?
Late last year, the European Central Bank (ECB) Banking Supervision published seven sound practices for managing intraday liquidity risk.
These were designed to help financial institutions mitigate the potentially cascading impact of intraday liquidity shortfalls, especially during periods of stress – a risk that continues to grow in intensity and complexity.
These practices have the potential to deliver benefits that extend far beyond what one might initially expect, but is it feasible that most firms can achieve these before the next crisis strikes?
The stakes are certainly high for many financial firms, with recent events demonstrating just how catastrophic the consequences can be for an institution that’s unable to meet its payment obligations on time due to insufficient liquidity.
This was further highlighted in a recent report from the Basel Committee on Banking Supervision (BCBS). Needless to say, the ramifications and the potential for systemic contagion are immense.
When one bank’s outgoing payment is delayed, it can quickly impact other counterparties, sparking a domino effect as unmet obligations ripple through markets.
The 2023 liquidity crisis several banks faced underscored just how quickly gaps in intraday liquidity can generate widespread issues. And recent years have seen multiple bouts of market turmoil – be it Covid-19, the 2022 Liability-Driven Investment (LDI) crisis, or last summer’s global equities sell-off.
Managing intraday liquidity in volatile markets presents significant challenges that are further intensified by factors such as the global trend towards shorter settlement cycles. This reduces the time available to source available liquidity, leaving institutions with even less room to manoeuvre should delays occur or unexpected liquidity demands arise.
As ESMA’s proposed 2027 shift to T+1 in the EU nears, this will likely only grow more challenging from a liquidity management perspective.
However, for firms with a strong handle on their intraday liquidity, the potential advantages extend well beyond simply addressing intraday liquidity risk – underlining the importance of paying the ECB’s principles close attention.
The ECB’s seven principles were published following a thematic review of intraday liquidity risk management practices across a sample of global systemically important banks. As the EBC Supervision Newsletter advised, the review revealed differing levels of maturity in the risk frameworks operated by the banks.
In summary, the new principles require financial institutions under the European Banking Supervision to achieve a host of objectives, such as
This all seems achievable. At least, it does on paper. But meeting the ECB’s guidelines and optimising intraday liquidity risk management could prove far from straightforward for scores of firms.
Many are likely to struggle, largely owing to their continued reliance on outdated manual intraday liquidity management processes and siloed systems. As a result, achieving an enterprise-wide, real-time view of liquidity positions that can be effectively leveraged to mitigate risks remains a significant challenge.
While most banks are producing real-time liquidity data, the issue is they often can’t swiftly aggregate and analyse it with other relevant information, such as historical client or market data, necessary for enterprise-wide risk management. They generally struggle to surface insights identifying early warning indicators in a timely manner.
Furthermore, if the data being analysed no longer reflects the current situation, the very basis on which risk management decisions are taken is flawed.
Risks generated by poor data quality are also gaining broader regulatory attention; on January 21st the Bank of England’s Prudential Regulation Authority (PRA) published a letter outlining its 2025 priorities for international banks, identifying poor data as “a root cause in a number of risks requiring remediation within firms.”
The PRA stressed that “firms need to continue to improve their ability to aggregate data to ensure that they have the information necessary to support holistic risk management.”
Many firms face challenges in accurately predicting the timing of inbound counterparty payments and using this insight to forecast how they might impact intraday liquidity flows. This use of predictive analytics could be invaluable in proactively addressing intraday liquidity risk.
Additionally, many lack automated and controlled payment sequencing tools, making it difficult to adapt liquidity management strategies during periods of unexpected stress to ensure they continue to meet critical, time-sensitive obligations and maintain liquidity throughput commitments.
If firms are to tackle the ECB’s sound practices successfully and, most importantly, avoid being the next bank to fail due to a liquidity crisis, they will need to find an effective way to achieve real-time visibility across all liquidity sources, as well as more accurately forecast intraday demands and effectively control outflows.
Ideally, they should adopt a scalable platform that replaces manual processes with automated, real-time workflows and one that’s able to easily integrate with the bank’s existing systems to access the wealth of real-time data many banks are currently unable to fully leverage.
The good news is advances in specialist intraday liquidity management technologies are enabling institutions to implement the tools and capabilities required, including:
Institutions with these tools will be best placed to benefit from the ECB’s sound practices and become leaders in financial resilience – but those without must move fast. If the last few years are any indication, the next liquidity crisis could be just around the corner.