Managing liquidity is a balancing act for bank treasurers. Having too much capital tied up in the buffers designed to ensure banks can honour their financial commitments is an inefficient use of capital, but insufficient funds in these buffers can lead to outgoing payments being delayed.
Swaps are one of the most dynamic components of the FX derivatives market, accounting for half of all daily FX market turnover, according to the BIS’s 2019 triennial survey.
However, the typical swap takes two days to settle, during which time the funds in the liquidity buffer cannot be used for any other purpose.
Finteum, a UK-based fintech, is aiming to help with that. It announced in June that NatWest, Deutsche Bank, Bank of Ireland and Banca Mediolanum had trialled a solution for inter-bank intraday FX swaps with seven other banks whose identities were not disclosed.
The use of intraday FX swaps could enhance liquidity management capabilities
An intraday FX swap involves a payment-versus-payment exchange of currency on the same day the transaction is agreed, with a second exchange at a predefined time later that day.
