FRM Exam Part II · Intraday Liquidity Risk Management

Sources and Uses of Intraday Liquidity for Banks

Updated 11 October 2026 · Fact-checked

Intraday liquidity is the funds a bank can access during the business day to make payments as they fall due. Sources are central bank reserves, intraday central bank credit against collateral, unencumbered liquid assets, and incoming payments. Uses are outgoing payments and settlement obligations. To solve questions, list sources, list uses, and compare them by time of day.

Understand Sources and Uses of Intraday Liquidity

A bank makes and receives payments all day through payment and settlement systems. Many of these settle in real time on a gross basis, so each payment needs funds in the settlement account at that moment. Intraday liquidity is the money available to meet those payments before the day ends.

The Basel Committee describes the sources a bank can draw on. They include: the balance held at the central bank (reserves); intraday credit from the central bank, usually against eligible collateral; unencumbered liquid assets that can be pledged or sold to raise funds; credit lines from other banks; and incoming payments from other participants. A bank can also raise funds by pledging collateral to a payment system that gives it intraday credit.

The uses are the payments the bank must send: its own customers' payments, payments for correspondent and settlement clients it serves, securities and FX settlement, and margin and collateral calls. Large-value payments that settle early create the biggest need.

The key point is timing. Over the day, total payments in and out may balance. But if outflows come early and inflows late, the bank needs a buffer to bridge the gap. That gap is the intraday liquidity need. Banks that depend on incoming payments are exposed if other banks delay payments. Stress also hits buffers, because collateral can lose value or be unavailable, and counterparties may hold back payments.

Banks manage this by measuring net cumulative position through the day, holding a buffer of reserves and collateral, monitoring payment timing, and setting limits. Collateral posted to one system is not free for use elsewhere, so it counts as encumbered.

Key formulas to remember

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.

How to solve Sources and Uses of Intraday Liquidity questions

Use this order for any scenario question on sources and uses of intraday liquidity.

1Identify the sources named: reserves, central bank intraday credit, collateral, other lines, incoming payments.
2Identify the uses: customer payments, client or correspondent payments, securities and FX settlement, margin calls.
3Check collateral: is it eligible and unencumbered? Apply the haircut to get usable value.
4Build the timeline: add receipts and subtract payments in order of time to find the net cumulative position.
5Find the lowest point of that position. That is the peak need or maximum usage.
6Compare peak need with available sources. Check whether any source depends on counterparties paying on time.
7Apply any stress in the question, such as delayed receipts or a larger haircut, and recompute.
8Pick the answer that matches the Basel concept named, and read the option wording carefully.

Quickest way: Peak need in three lines

When to use it: Use when a question gives a timed list of payments in and out and asks for the peak need or the buffer required.

Write a running total after each timed item: receipts positive, payments negative.
Circle the most negative running total. That is the peak need.
Check sources: usable collateral = value × (1 − haircut). Then compare with the peak need.

Common mistakes in Sources and Uses of Intraday Liquidity

Counting incoming payments as a guaranteed source.
Receipts balance payments over the day, so students assume they will arrive on time.
Fix: Treat receipts as dependent on other banks. In stress, assume delays and test the buffer without them.
Using collateral at full market value.
Students forget the haircut or ignore that credit is lent against value after the haircut.
Fix: Multiply by (1 − haircut) and count only unencumbered, eligible assets.
Using the end-of-day net position instead of the peak.
End-of-day totals often net to zero and look safe.
Fix: Track the position through the day. The intraday low point drives the need.
Counting the same collateral twice.
Students add collateral for intraday credit and also for overnight funding or margin.
Fix: Collateral pledged once is encumbered. Count it in one place only.
Confusing intraday liquidity with overnight or LCR liquidity.
All are called liquidity buffers and the terms blur.
Fix: Intraday liquidity is about timing of payments within one business day in settlement systems. Overnight funding and the LCR cover longer horizons.

Worked examples

Example 1

A bank starts the day with USD 50 million in its central bank account. In order: it pays out USD 120 million at 9:00; receives USD 40 million at 10:30; pays out USD 60 million at 12:00; receives USD 130 million at 15:00. What is the maximum daily intraday liquidity usage, how much must be funded beyond the opening balance, and what is the end-of-day balance?

Show the solution

Track the net cumulative position of payments received minus payments sent. Exclude the opening balance.
After 9:00: −120.
After 10:30: −120 + 40 = −80.
After 12:00: −80 − 60 = −140.
After 15:00: −140 + 130 = −10.
The most negative net cumulative position is −140, so maximum usage is USD 140 million.
The opening balance of USD 50 million covers part of this. The amount to fund beyond it is 140 − 50 = 90 (for example with intraday central bank credit).
Check the account balance at 12:00: 50 − 140 = −90, which agrees. The USD 90 million shortfall is covered by intraday credit.
The USD 90 million of intraday credit is repaid when the USD 130 million arrives at 15:00: −90 + 130 = 40. Net payments over the day are −10, so the closing balance is 50 − 10 = 40, which agrees.

Answer: Maximum usage is USD 140 million (at 12:00). After using the USD 50 million opening balance, USD 90 million must be funded with intraday credit. That credit is repaid when the USD 130 million arrives at 15:00, leaving an end-of-day balance of USD 40 million.

Example 2

A bank needs USD 90 million of intraday credit. It can pledge eligible, unencumbered government bonds with market value USD 100 million and a 5% haircut, and corporate bonds with market value USD 20 million and a 20% haircut. Does the pledged collateral cover the need, and what is the surplus or shortfall?

Show the solution

Government bonds: 100 × (1 − 0.05) = 95 million.
Corporate bonds: 20 × (1 − 0.20) = 16 million.
Total usable value = 95 + 16 = 111 million.
Compare with the need: 111 − 90 = 21.
The collateral covers the need with a surplus of USD 21 million. If the central bank accepts only the government bonds, 95 − 90 = 5, so cover would still hold but with a thin margin.

Answer: Yes. Usable collateral is USD 111 million, giving a USD 21 million surplus over the USD 90 million need.

Exam tips

Expect timeline questions: build a running total and find the lowest point, not the closing balance.
Always apply haircuts and exclude encumbered assets before comparing with the need.
Watch for stress wording such as delayed receipts or a payment system disruption. It means receipts cannot be relied on.
Know the list of sources and uses cold. Option sets often swap in an item that belongs to longer-term funding.
Match the term to the concept: intraday credit is secured and short-lived; reserves are the bank's own balance at the central bank.

Practice questions from Intraday Liquidity Risk Management

Sources and Uses of Intraday Liquidity in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CFA Level ILiquidity Management and Sources of Liquidity

Sources and Uses of Intraday Liquidity: frequently asked questions

What are the main sources of intraday liquidity for banks?

They are central bank reserves, intraday credit from the central bank against collateral, unencumbered liquid assets, other secured or committed lines, and incoming payments from other participants. Reserves and collateral are under the bank's own control. Incoming payments depend on others.

Why does collateral matter for intraday credit?

Central banks usually lend intraday against eligible collateral, valued after a haircut. The bank can only use assets that are eligible and unencumbered. Collateral already pledged elsewhere cannot support more credit.

How do banks manage intraday liquidity buffers?

They monitor the net cumulative position through the day, hold enough reserves and unencumbered collateral to cover the peak need, and track the timing of payments. They also test the buffer under stress, such as delayed receipts or lower collateral values, and set limits and escalation triggers.

Is intraday liquidity the same as the LCR buffer?

No. Intraday liquidity covers payment timing within a single business day in settlement systems. The Liquidity Coverage Ratio covers a 30-day stress horizon. The same assets may serve both, but the needs and measures differ.