Payments Academy
Bank that participates directly PAYMENT OPERATIONS STARTED LIVE 01 Bank that participates directly - Every bank that participates directly ACTIVE 02 Meaning the bank - Intraday credit is usually collateralised QUEUED 03 Customer information and real time monitoring - Treasury teams use QUEUED 04 At 10 in the morning - bank draws EUR 60 million of intraday credit QUEUED 05 Liquidity machinery specification - analyst specifies the machinery behind QUEUED 06 Bank that cannot - produce that check before the close QUEUED Every bank that participates directly in a payment system holds a settlement account at the central bank. Step 1 of 6 Bank that participates directly STARTED Bank that participates directly Every bank that participates directly ACTIVE Meaning the bank Intraday credit is usually collateralised QUEUED Customer information and real time Treasury teams use historical patterns QUEUED At 10 in the morning bank draws EUR 60 million of intraday credit QUEUED Liquidity machinery specification analyst specifies the machinery behind QUEUED Bank that cannot produce that check before the close QUEUED Every bank that participates directly in a payment system holds a settlement account at the central bank.
Meaning the bank must pledge securities such PAYMENT OPERATIONS IN PROGRESS LIVE 01 Bank that participates directly - Every bank that participates directly DONE 02 Meaning the bank - Intraday credit is usually collateralised ACTIVE 03 Customer information and real time monitoring - Treasury teams use QUEUED 04 At 10 in the morning - bank draws EUR 60 million of intraday credit QUEUED 05 Liquidity machinery specification - analyst specifies the machinery behind QUEUED 06 Bank that cannot - produce that check before the close QUEUED Intraday credit is usually collateralised Step 2 of 6 Meaning the bank must pledge securities such IN PROGRESS Bank that participates directly Every bank that participates directly DONE Meaning the bank Intraday credit is usually collateralised ACTIVE Customer information and real time Treasury teams use historical patterns QUEUED At 10 in the morning bank draws EUR 60 million of intraday credit QUEUED Liquidity machinery specification analyst specifies the machinery behind QUEUED Bank that cannot produce that check before the close QUEUED Intraday credit is usually collateralised
Customer information and real time monitoring PAYMENT OPERATIONS IN PROGRESS LIVE 01 Bank that participates directly - Every bank that participates directly DONE 02 Meaning the bank - Intraday credit is usually collateralised DONE 03 Customer information and real time monitoring - Treasury teams use ACTIVE 04 At 10 in the morning - bank draws EUR 60 million of intraday credit QUEUED 05 Liquidity machinery specification - analyst specifies the machinery behind QUEUED 06 Bank that cannot - produce that check before the close QUEUED Treasury teams use historical patterns, customer information and real time monitoring to build a forecast, and they adjust it through the day as actual flows differ from the forecast. Step 3 of 6 Customer information and real time monitoring IN PROGRESS Bank that participates directly Every bank that participates directly DONE Meaning the bank Intraday credit is usually collateralised DONE Customer information and real time Treasury teams use historical patterns ACTIVE At 10 in the morning bank draws EUR 60 million of intraday credit QUEUED Liquidity machinery specification analyst specifies the machinery behind QUEUED Bank that cannot produce that check before the close QUEUED Treasury teams use historical patterns, customer information and real time monitoring to build a forecast, and they adjust it through the day as actual flows differ from the forecast.
At 10 in the morning PAYMENT OPERATIONS IN PROGRESS LIVE 01 Bank that participates directly - Every bank that participates directly DONE 02 Meaning the bank - Intraday credit is usually collateralised DONE 03 Customer information and real time monitoring - Treasury teams use DONE 04 At 10 in the morning - bank draws EUR 60 million of intraday credit ACTIVE 05 Liquidity machinery specification - analyst specifies the machinery behind QUEUED 06 Bank that cannot - produce that check before the close QUEUED At 10 in the morning the bank draws EUR 60 million of intraday credit to cover a cluster of large outgoing payments Step 4 of 6 At 10 in the morning IN PROGRESS Bank that participates directly Every bank that participates directly DONE Meaning the bank Intraday credit is usually collateralised DONE Customer information and real time Treasury teams use historical patterns DONE At 10 in the morning bank draws EUR 60 million of intraday credit ACTIVE Liquidity machinery specification analyst specifies the machinery behind QUEUED Bank that cannot produce that check before the close QUEUED At 10 in the morning the bank draws EUR 60 million of intraday credit to cover a cluster of large outgoing payments
Liquidity machinery specification PAYMENT OPERATIONS IN PROGRESS LIVE 01 Bank that participates directly - Every bank that participates directly DONE 02 Meaning the bank - Intraday credit is usually collateralised DONE 03 Customer information and real time monitoring - Treasury teams use DONE 04 At 10 in the morning - bank draws EUR 60 million of intraday credit DONE 05 Liquidity machinery specification - analyst specifies the machinery behind ACTIVE 06 Bank that cannot - produce that check before the close QUEUED An analyst specifies the machinery behind this in four places. Step 5 of 6 Liquidity machinery specification IN PROGRESS Bank that participates directly Every bank that participates directly DONE Meaning the bank Intraday credit is usually collateralised DONE Customer information and real time Treasury teams use historical patterns DONE At 10 in the morning bank draws EUR 60 million of intraday credit DONE Liquidity machinery specification analyst specifies the machinery behind ACTIVE Bank that cannot produce that check before the close QUEUED An analyst specifies the machinery behind this in four places.
Bank that cannot PAYMENT OPERATIONS COMPLETE LIVE 01 Bank that participates directly - Every bank that participates directly DONE 02 Meaning the bank - Intraday credit is usually collateralised DONE 03 Customer information and real time monitoring - Treasury teams use DONE 04 At 10 in the morning - bank draws EUR 60 million of intraday credit DONE 05 Liquidity machinery specification - analyst specifies the machinery behind DONE 06 Bank that cannot - produce that check before the close ACTIVE A bank that cannot produce that check before the close of business is flying blind on its most expensive risk. Step 6 of 6 Bank that cannot COMPLETE Bank that participates directly Every bank that participates directly DONE Meaning the bank Intraday credit is usually collateralised DONE Customer information and real time Treasury teams use historical patterns DONE At 10 in the morning bank draws EUR 60 million of intraday credit DONE Liquidity machinery specification analyst specifies the machinery behind DONE Bank that cannot produce that check before the close ACTIVE A bank that cannot produce that check before the close of business is flying blind on its most expensive risk.

Key points of this lesson, in order.

0:00 / 3:31 Step 1 of 6

Intraday Liquidity and Central Bank Accounts

Liquidity Management, Lesson 2 of 7, Narration 3:31, D07 Clearing, settlement and liquidity

Intraday liquiditySettlementLiquidity

What you will learn

Your objective. By the end of this lesson, you will be able to explain intraday liquidity and central bank accounts. Every bank that participates directly in a payment system holds a settlement account at the central bank.

Why it matters. Intraday credit is usually collateralised, meaning the bank must pledge securities such as government bonds to secure it, and it is usually free or very cheap, because the central bank wants payments to flow smoothly.

Chapter objective: Learner manages intraday liquidity, explains funding sources, queues, and gridlock, and calculates a bank liquidity position from opening balance, inflows, outflows, and reserves. Learner applies this skill in realistic banking scenarios, with clear examples and correct terminology throughout.

Key learning points

  • Bank that participates directly
  • Meaning the bank must pledge securities such
  • Customer information and real time monitoring
  • At 10 in the morning
  • Liquidity machinery specification
  • Bank that cannot

Key terms

Intraday liquidity: Cash available to a bank during the business day to settle payments as they fall due. Intraday liquidity comes from account balances, incoming payments and central bank facilities.

Settlement: The final movement of funds between banks to discharge obligations created by cleared payments. Settlement is usually made in central bank money or through correspondent accounts.

Liquidity: Cash or assets that a bank can use immediately to meet payment obligations. Banks manage liquidity by forecasting inflows and outflows, funding nostro and settlement accounts, and using central bank...

Payment flow diagram showing Intraday Liquidity and Central Bank Accounts.

Practise this lesson

Exercise

Decide which settlement model fits the scenario in this lesson and explain why.

Use the settlement models, the liquidity trade-off and the finality rules in this lesson.

  1. What to do. Name the model, state when settlement becomes final, and explain what happens if the sending bank does not have enough liquidity.

Correct result. Real time gross settlement settles each payment individually in central bank money with immediate finality, but it needs liquidity for every payment. Deferred net settlement nets payments and settles the net position, which needs less liquidity but leaves settlement risk until the net settles.

Why. Settlement is where money actually moves. The model decides the risk, the liquidity need, and when the payment is truly final.

Check your understanding

Practice question

A bank has many large RTGS payments queued at 10am but not enough liquidity on its account to settle them all. What is the practical consequence, and what tool helps?

Takeaway and next step

What to remember

A bank that cannot produce that check before the close of business is flying blind on its most expensive risk.

Settle a payment like the one in this lesson and watch the liquidity and finality behaviour.

Open the T2/TIPS Simulator →

Builds on "Why Liquidity Is the Lifeblood of Settlement".

Transcript and full text

Show transcript

Every bank that participates directly in a payment system holds a settlement account at the central bank. The balance in that account is the bank's primary source of intraday liquidity. At the start of the day, the balance reflects the bank's overnight position plus any funds it has moved in from other accounts. As payments settle, the balance falls when the bank sends payments and rises when it receives them. The bank's job is to keep the balance above zero all day, while using as little idle balance as possible, because idle balances earn little return. Central banks help by providing intraday credit, which is short term funding that a bank can draw on during the day and must repay before the close of business. Intraday credit is usually collateralised, meaning the bank must pledge securities such as government bonds to secure it, and it is usually free or very cheap, because the central bank wants payments to flow smoothly. The amount of intraday credit available, and the collateral required, are key parameters that shape how much liquidity a bank can access in a crisis. Banks also manage their intraday position actively. They monitor their balance in real time, forecast incoming and outgoing payments, and move funds between accounts when needed. Some payments are predictable, such as salary runs and known loan repayments, while others are not, such as large corporate payments that arrive without warning. Treasury teams use historical patterns, customer information and real time monitoring to build a forecast, and they adjust it through the day as actual flows differ from the forecast. The quality of this forecasting is a major determinant of how smoothly a bank settles. Work the numbers for one morning. Bank A starts the day with EUR 80 million in its central bank account. It also holds EUR 220 million of government bonds pledged as collateral for intraday credit. The central bank applies a haircut of 10 percent to the bonds, so the usable credit is EUR 198 million, not EUR 220 million. At 10 in the morning the bank draws EUR 60 million of intraday credit to cover a cluster of large outgoing payments, and by half past four in the afternoon the incoming payments have arrived and the credit is repaid in full. Intraday credit costs little or nothing, because the central bank wants payments to flow, but it must be repaid before the close of business. If the bank fails to repay, the intraday borrowing converts to overnight borrowing at a penalty rate, and the bank pays for the mistake. The forecast matters too. A salary run of EUR 45 million is predictable and is in the morning plan, but a corporate payment of EUR 30 million that arrives without warning is not, and treasury keeps a buffer for exactly that kind of surprise. An analyst specifies the machinery behind this in four places. First, the collateral eligibility list. Which securities the central bank accepts, and the haircut for each type. Second, the auto sweep rules. When surplus funds move out of the settlement account at the end of the day, and when funds move in. Third, the forecasting inputs. Known payment runs, customer information, and historical patterns, with a named owner for keeping them current. Fourth, the end of day check. A control that confirms all intraday credit is repaid and flags any balance that will convert to overnight borrowing. A bank that cannot produce that check before the close of business is flying blind on its most expensive risk.

Every bank that participates directly in a payment system holds a settlement account at the central bank. The balance in that account is the bank's primary source of intraday liquidity. At the start of the day, the balance reflects the bank's overnight position plus any funds it has moved in from other accounts. As payments settle, the balance falls when the bank sends payments and rises when it receives them. The bank's job is to keep the balance above zero all day, while using as little idle balance as possible, because idle balances earn little return.

Central banks help by providing intraday credit, which is short term funding that a bank can draw on during the day and must repay before the close of business. Intraday credit is usually collateralised, meaning the bank must pledge securities such as government bonds to secure it, and it is usually free or very cheap, because the central bank wants payments to flow smoothly. The amount of intraday credit available, and the collateral required, are key parameters that shape how much liquidity a bank can access in a crisis.

Banks also manage their intraday position actively. They monitor their balance in real time, forecast incoming and outgoing payments, and move funds between accounts when needed. Some payments are predictable, such as salary runs and known loan repayments, while others are not, such as large corporate payments that arrive without warning. Treasury teams use historical patterns, customer information and real time monitoring to build a forecast, and they adjust it through the day as actual flows differ from the forecast. The quality of this forecasting is a major determinant of how smoothly a bank settles.

Work the numbers for one morning. Bank A starts the day with EUR 80 million in its central bank account. It also holds EUR 220 million of government bonds pledged as collateral for intraday credit. The central bank applies a haircut of 10 percent to the bonds, so the usable credit is EUR 198 million, not EUR 220 million. At 10 in the morning the bank draws EUR 60 million of intraday credit to cover a cluster of large outgoing payments, and by half past four in the afternoon the incoming payments have arrived and the credit is repaid in full. Intraday credit costs little or nothing, because the central bank wants payments to flow, but it must be repaid before the close of business. If the bank fails to repay, the intraday borrowing converts to overnight borrowing at a penalty rate, and the bank pays for the mistake. The forecast matters too. A salary run of EUR 45 million is predictable and is in the morning plan, but a corporate payment of EUR 30 million that arrives without warning is not, and treasury keeps a buffer for exactly that kind of surprise.

An analyst specifies the machinery behind this in four places. First, the collateral eligibility list. Which securities the central bank accepts, and the haircut for each type. Second, the auto sweep rules. When surplus funds move out of the settlement account at the end of the day, and when funds move in. Third, the forecasting inputs. Known payment runs, customer information, and historical patterns, with a named owner for keeping them current. Fourth, the end of day check. A control that confirms all intraday credit is repaid and flags any balance that will convert to overnight borrowing. A bank that cannot produce that check before the close of business is flying blind on its most expensive risk.

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