Intraday liquidity management: ECB standards and their consequences

In November 2024, the European Central Bank (ECB) published binding standards (sound and best practices) for the management of intraday liquidity risk (Intraday Liquidity Management | ILM). These principles present banks with complex tasks.

Our whitepaper "The ECB Intraday Liquidity principles" analyses which areas of action banks now have in order to meet the regulatory requirements - and what needs to be considered from a technical, procedural and organisational perspective.

The management of intraday liquidity within a banking day is essential for solvency at all times and thus for smooth payment transactions. Inefficient management harbours, among other things, the risk of payment defaults and the associated adverse reputational consequences. Recent market turmoil, such as the banking crises in the US and Switzerland in 2023, have shown that inadequate intraday liquidity management can also have a significant impact on financial stability. The new ECB standards set clear expectations for financial institutions:

• Technological infrastructure: banks must implement real-time data processing and monitoring systems to efficiently monitor intraday liquidity risk. This also includes the integration of automated control mechanisms for liquidity flows.
• Process-related and organisational requirements: The new ECB standards require clear governance structures and escalation processes as well as closer coordination between the three lines of defence, but especially treasury, risk, and market divisions.
• Management of intraday liquidity: The ECB expects the identification of possible intraday liquidity sources and prioritised allocation to intraday liquidity requirements. This means that intraday liquidity is held and utilised by banks in a targeted and prioritised manner.

We see three main areas of action for banks when implementing the ECB requirements. In the white paper, we highlight typical pitfalls that banks should be aware of when developing a sustainable and efficient ILM target image:

• Technology: Managing intraday liquidity requires large volumes of real-time data. The quality and timely processing of the data in order to derive automated control impulses place high demands on the performance of the infrastructure and the resilience of the processes.
• Business operations: The scope and responsibilities in the operational procedure for managing and monitoring intraday liquidity must be defined and delineated. One aspect in particular is the definition and allocation of liquidity buffers for regular business operations and for stress, without neglecting the buffer costs.
• Resilience: By utilising real-time data in intraday liquidity risk management, banks have a more precise view of short-term liquidity and can plan and act better in crisis situations, which usually requires process adjustments.

The white paper shows that banks that invest in a structured implementation of the new requirements at an early stage will benefit from more efficient processes in the long term. The decisive factor here is a combination of technological optimisation, clear control mechanisms and data-based forecasting models. In this way, banks can not only implement regulatory requirements, but also secure strategic advantages.

Artificial intelligence also plays a role: the use of AI-supported forecasting models allows liquidity flows to be analysed more precisely and management decisions to be made more quickly. In addition, the establishment of clearly defined escalation processes enables risks to be recognised at an early stage and, in the best case, averted.

Download the full publication and find out more about the new ECB standards for intraday liquidity management and the approaches for successful implementation.