Consulting for Banking Automation

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Cash Management and Payments Quantifying the
Value of Intra-Day Liquidity Management

• Laurent FranceschettiSenior Consultant

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Cash Accounts
Central Bank
Correspondents
Bank
Custodians
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Current Trends

• Clients want faster execution
• Clients want more transparence
• Settlement time is going down (T, T1, T3)
• Integration between Securities and Cash
  Management (accounts with custodians, repo, etc.)
• European and Global Correspondents

How to perform the cash management during the day?
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Problem

• How can we manage the cash accounts with all
  correspondents in a way to optimize the
  management of liquidity?

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The Tools of Cash Management
Balances(Internal)
Queries
Advices(Internal)
Payments in and out
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Difficulties

• The Back Office (accounting) application is not
  aware of the actual positions with our
  correspondents it does not know what is
  outstanding.
• were our instructions really received and
  executed?
• When will they be executed?
• Inbound instructions and payments?
• What is important for Cash Management is what the
  correspondent says our balance is, not what our
  accounting say it is.

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Reconciliation Will Not Solve the Problem

• Reconciliation comes after focused on exactness
  and it is our image
• In case of discrepancy gt investigation and
  claims.
• Cash Management is now focused on timeliness and
  completeness. This is what our counterparty s
  image is.
• In case of discrepancy gt admit the information
  from the counterparty.

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A Simple Liquidity Model
Credit Accounts
Debit Accounts
Interbank
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- 9.0
1.5
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Absolute (Hypothetic)
Credit Accounts
Debit Accounts
Interbank
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- 9.0
1.5
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But Can We Improve?
Credit Accounts
Debit Accounts
Interbank
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- 9.0
1.5
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A Situation
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The Three Cases
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What We Get
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First Conclusion

• Yes, it is definitely worthwhile to move around
  funds in order to improve the management of
  liquidity.

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Why is This Difficult ?

• 1. Inertia funds cannot be moved arount at
  infinite speed. It takes time to place orders and
  to execute them.
• 2. Friction moving funds around has a cost.
  Under a certain amount, it is not worth it.
• 3. Uncertainty how do you know exactly what you
  have on each account or what you will need?
• 4. Minima a  cushion  must be left, to cover
  against risk.

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Improving on Inertia and Friction

• Fast Treasury Flow
• Automate generation of payments and
  account-to-account movements.
• Improving internal STP
• Selecting correspondents with good service and
  good STP
• Cutting costs of payments down

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Improving on Uncertainty

• Know what you have on cash accounts
• Currently this information may or may not be
  available on-line -- too hard anyway to follow
  them up.
• MT950/940 balances are available before beginning
  of day
• The solution is to automatically follow-up the
  flow of financial messages.

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A Good Method
Correspondent
MT950 Statement of Account
?
Payment Messages
Synchro
Bank
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What a Liquidity Management Tool Does

• Provides an information centre on accounts
  (estimated balances)
• Allows to easily move funds around in order to
  avoid debit positions and invest on interbank
  market.
• Allows to easily place funds on the interbank
  market.

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Conclusion

• Yes, it is financially prudent to efficiently
  manage intra-day liquidity.
• The solution is to use a Liquidity Management
  Tool.

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Thank You for Your Attention.

• Laurent Franceschetti
• SettleNext
• 13, rue Fort-Barreau
• CH-1201 Geneva
• Tel [phone]
• E-mail info_at_settlenext.com