Effective Strategies to Mitigate Intraday Settlement Risk

  • 5/12/2023
  • One-minute read

Intraday settlement risk arises when payment obligations become due before incoming cash settles, creating gaps in available liquidity. Timing mismatches, operational delays, and market shocks can cascade through payment systems if not managed carefully.

Common Drivers

  • Payment Timing: High-value payments queued early in the day without matching inflows.
  • Operational Issues: Outages in clearing systems or internal approval workflows.
  • Market Events: Volatility-triggered margin calls or disruptions in correspondent banking networks.

Mitigation Toolkit

  1. Intraday Liquidity Forecasting: Use realtime dashboards to track expected inflows/outflows across RTGS, CLS, and internal ledgers.
  2. Liquidity Buffers: Maintain committed credit lines or central-bank collateral pools sized to stress scenarios.
  3. Queue Management: Prioritise critical payments; implement automatic throttling for non-urgent flows during stress.
  4. Automation & Monitoring: Streamline confirmations, reconciliations, and exception handling to cut manual delays.
  5. Stress Testing: Simulate payment gridlock, counterparty default, and market shocks to validate contingency plans.

Governance

  • Establish intraday risk appetite, escalation protocols, and board reporting.
  • Coordinate treasury, operations, and technology teams for rapid response.
  • Align practices with regulatory guidance (e.g., BCBS 248, CPMI monitoring tools).

Disclaimer

This article provides general information only. Financial institutions must consult internal risk, compliance, and legal teams to design controls tailored to their regulatory obligations and counterparties.

financeriskbankingtechnologystrategy