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FRM Part II · FRM Exam Part II · Intraday Liquidity Risk Management

A bank moves from a deferred net settlement system to RTGS for its large-value payments. Which is the most likely effect on its intraday liquidity management?

Moving to RTGS typically increases intraday liquidity needs, because every payment must be funded individually and in full when released, without the offsetting benefit of multilateral netting. The trade-off is lower settlement risk because payments are final immediately.

  1. AIntraday liquidity needs rise because each payment needs funds available at the time it is released, with no benefit from nettingCorrect
  2. BIntraday liquidity needs fall because payments are netted at end of day
  3. CSettlement risk between participants increases because of delayed finality
  4. DIntraday liquidity needs become irrelevant because the central bank guarantees all payments

Explanation

RTGS removes netting, so gross funding must be available when each payment is sent, increasing intraday liquidity demand. Settlement risk falls, not rises, because of immediate finality.

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