FRM Part II · FRM Exam Part II

Intraday Liquidity Risk Management: formula sheet

Full chapter guide

Key formulas

Net cumulative position: Net cumulative position at time t = Σ payments received up to t − Σ payments sent up to t; A negative value means the bank has used its own liquidity (or intraday credit) to fund payments. Check the sign convention in the question.
Daily maximum intraday liquidity usage: Maximum usage = largest cumulative net outflow during the day (the lowest point of the net cumulative position, if negative); This is the peak need, not the end-of-day position. Sized against the available intraday liquidity.
Available intraday liquidity: Available = central bank balance at start of day + collateral that can be pledged for intraday credit + other intraday sources; Compare this with peak usage to see whether the bank has a sufficient buffer.
Intraday liquidity headroom: Headroom = Available intraday liquidity − Maximum intraday usage; A negative result means a shortfall at the peak.
Net settlement obligation: Net position = Σ payments received − Σ payments sent; In DNS, only this net amount is settled per participant. A negative figure is a net payment owed.
Intraday liquidity need (peak): Peak need = largest cumulative net outflow during the day (from the running balance); Track opening balance plus cumulative receipts minus payments. The lowest point shows the liquidity needed.
Liquidity saving from netting: Saving = Gross payments − Net payment; Netting reduces funding needs, but delays final settlement and adds credit risk between cycles.
Settlement type rule: RTGS = gross, real-time, final. DNS = net, at set times. PvP = both legs or neither.; Use this to classify a system quickly in a question.
Basel intraday monitoring (concept): Intraday liquidity usage = max net debit position; available intraday liquidity = reserves plus collateral; Know the idea of daily maximum usage and available liquidity, not just the names.
Net cumulative position: Net cumulative position at time t = Σ payments received up to t − Σ payments sent up to t; A negative value means the bank has used its own liquidity or intraday credit by that time. The lowest point is the peak need.
Intraday liquidity available: Available = opening reserves + intraday central bank credit capacity + unencumbered liquid assets (after haircuts) + other secured or committed lines; Apply collateral haircuts and count only assets that are eligible and not already pledged.
Maximum daily intraday liquidity usage: Max usage = largest negative net cumulative position of payments received minus payments sent during the day (opening balance excluded); This is a Basel monitoring tool. It shows the peak amount of liquidity the bank consumed. Do not add the opening balance to the running total. Compare the opening balance and other sources with max usage afterwards to see how much must be funded.
Collateral value after haircut: Collateral value = market value × (1 − haircut); Use this to find how much intraday credit a pledge supports.
Coverage check: Buffer adequacy: available intraday liquidity ≥ peak intraday need under stress; Compare against a stressed need, not just the normal day.
Net cumulative position: Net cumulative position at time t = Σ payments received up to t − Σ payments sent up to t; A negative value means the bank has used its own intraday liquidity to fund payments.
Daily maximum intraday liquidity usage: Daily maximum usage = largest negative net cumulative position during the day (shown as a positive amount); If the position never goes negative, usage is zero. Measure it per currency and per settlement system.
Headroom (practical check): Headroom = available intraday liquidity at start of day − daily maximum usage; A working comparison, not a Basel-defined limit. Negative headroom signals a shortfall.
Intraday throughput: Throughput at time t = value of outgoing payments settled by t ÷ total value of outgoing payments × 100%; Low early-day throughput means payments are back-loaded and the bank leans on incoming funds.
Scope rule: Seven indicators: daily maximum usage, start-of-day available liquidity, total payments, time-specific obligations, throughput, correspondent banking payments, intraday credit lines to customers; The correspondent banking and customer credit line indicators apply where the bank provides those services. The tools are monitoring tools, not limits or ratios with a required minimum.
Net cumulative intraday position: Net position at time t = cumulative receipts to t − cumulative payments to t; A negative value means the bank needs funding at that point. The most negative value in the day is the peak cumulative net outflow.
Available intraday liquidity: Available liquidity = opening balance + intraday credit capacity (+ collateral that can be mobilised); Compare the peak cumulative net outflow with this total. Shortfall = peak net outflow − available liquidity. A positive result is a shortfall; a negative result means headroom.
Seven BCBS 248 principles in order: Measure/forecast → Monitor → Funding → Collateral → Time-specific obligations → Timing of outflows → Disruptions; These are the seven operational principles of BCBS 248, numbered 1 to 7 here. Use this sequence to place any scenario quickly.
Stress scenarios: Own financial stress | Counterparty stress | Customer stress | Market-wide stress; Each one cuts receipts, raises outflows or restricts access to funding in a different way.

Quick revision

Intraday liquidity risk is the risk of failing to meet payments and settlements when due during the day.
Intraday risk can arise even when a bank is fine at day end.
RTGS settles payments individually and in real time, in central bank money.
CHAPS is the UK high-value sterling payment system.
CLS settles foreign exchange trades payment versus payment and reduces settlement risk.
Sources include reserve balances, incoming payments, collateral and intraday credit from the central bank.
Uses are mainly outgoing payments, including those made on behalf of customers.
Delaying outgoing payments to wait for incoming ones can spread stress to other banks.
Basel monitoring tools are reporting measures for supervisors, not hard limits.
Stress scenarios include own-bank stress, counterparty stress and a market-wide event.
Good management needs senior oversight, measurement, collateral planning and a contingency plan.
Match each question to a risk, a measure and an action.

Common mistakes

Treating intraday liquidity as the same as overnight liquidity. Fix: Remember the horizon. Intraday is about timing within the day. Overnight is about the position at close and funding for the next day.
Using the end-of-day balance to judge intraday risk. Fix: Look for the lowest point of the running balance. A positive close can hide a large intraday deficit.
Saying RTGS reduces liquidity needs compared with DNS. Fix: RTGS settles gross, so it needs more intraday liquidity. DNS needs less liquidity but carries more credit risk.
Using the end-of-day net position as the intraday liquidity need. Fix: Compute the running balance in time order. The lowest point is the peak need.
Counting incoming payments as a guaranteed source. Fix: Treat receipts as dependent on other banks. In stress, assume delays and test the buffer without them.
Using collateral at full market value. Fix: Multiply by (1 − haircut) and count only unencumbered, eligible assets.
Treating daily maximum usage as total payments sent. Fix: Usage is the deepest net cumulative negative position after counting payments received. Total payments is a separate, gross indicator.
Taking the end-of-day net position as the maximum usage. Fix: Check every interval. The lowest running total usually occurs mid-day, and the bank may end the day positive.
Treating intraday liquidity like overnight liquidity such as the LCR buffer Fix: Intraday liquidity is about timing within the day. Ask when payments are due, not just what the day-end position is.
Using net daily flows to judge risk Fix: A bank with a zero net flow can still face a large peak need if outflows come first. Use gross flows and their timing.

Exam tips

Look for timing words such as during the day, real time, peak and settlement. They signal intraday liquidity.
In numerical questions, find the lowest running position, not the final one.
When an option talks only about the closing balance or overnight funding, it is usually the wrong choice for an intraday question.
Remember the contagion link: delayed payments by one bank can cause delays at others.
Know the sources and uses of intraday liquidity well, since conceptual questions often ask you to classify items.
Expect case-style questions asking which system or risk fits a scenario. Classify first.
For timeline problems, always compute the running balance and report the minimum.
Remember the trade-off: gross is safer but liquidity-hungry, net is liquidity-light but riskier.