Journal of Financial Market Infrastructures

A dynamic approach to intraday liquidity needs

Freddy Cepeda López and Fabio Ortega Castro


This paper presents a methodology to estimate the intraday liquidity that a systemically important entity (SIE) needs to fulfill all of its obligations in a timely fashion when a simulated failure-to-pay from its main liquidity supplier by discretionary concepts of payment occurs. Using the Bank of Finland's simulator and fund-transfer data from the Colombian large-value payment system, we achieve a dynamic estimation measuring three types of effects (direct, second round and feedback). The results validate the existence of a nonlinear relationship between the initial failure-to-pay of a specific institution and the extended failures-to-pay of the rest of the system. An intraday liquidity sufficiency index is proposed to quantify the average amount
of additional liquidity needed to efficiently fulfill all of an SIE's obligations without generating second-round effects. Our methodology and recommendations contribute to the international discussion on managing intraday liquidity risk, the efficiency and security of the payment system and, ultimately, financial stability.

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