Peter Gallagher and Lindsay Boulton

Managing System Liquidity
Lindsay Boulton
Peter Gallagher
Reserve Bank of Australia

Managing System Liquidity
• Market Operations
– Injecting/withdrawing liquidity
• Operating the RTGS System
– Monitoring payments patterns
– Providing liquidity management tools

Liquidity Management - Market
Operations
• Operations are integral to policy
implementation.
• Directed at keeping the cash rate close
to the target.

$b
6
5
4
3
2
1
0
Aggregate Exchange Settlement Balances
1998
l l l l l l l l
1999 2000 2001 2002 2003 2004 2005 2006
$b
6
5
4
3
2
1
0

Overnight Repurchase Agreement
Facility
Number of Times Used
Value
($ million)
2000/01 18 2,611
2001/02 11 673
2002/03 14 1,673
2003/04 24 2,159
2004/05 11 1,394
2005/06 10 436
2006/07 19 2,529

12
8
4
0
1993
Exchange Settlement Balances
Monthly
$b $b
Remunerated at 10 bp
below Cash
l l l l l l l l l l l l l l
1995
1997
+/- 25 bp Corridor
Introduced
RTGS
1999
2001
CLS GO-Live
2003
2005
12
8
4
0
2007

$bn
150
100
50
0
1998
RTGS Settlements & Intra-Day Repos
RTGS Settlements
Intra-Day Repo with
RBA
l l l l l l l l l
1999 2000 2001 2002 2003 2004 2005 2006
2007
$bn
150
100
50
0

Liquidity Monitor

50
40
30
20
10
0
Intra-day Distribution of Intra-day Repos
Percent of total value, Daily average
% %
Pre-
9:00am
� 2004 - 05
� Apr 06 - Apr 07
9-10am 10-11am 11-12pm 12-1pm 1-2pm 2-3pm 3-4pm 4-4:30pm Post
4:30pm
Time of Day
50
40
30
20
10
0

Intra-Day Repo
Percentage of Total Value
% %
80
60
40
20
RBA Repo
RBA OTC
0
l l l l l l
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07
80
60
40
20
0

50
40
30
20
10
0
Intra-Day Repos
Percentage of Total Value, Daily Average Jan04 - Apr07
% %
� RBA Repo
� RBA OTC
Pre-9am 9 10 11 12 13 14 15 16 Post
4:30pm
50
40
30
20
10
0

20
15
10
5
0
Days With Intraday Repos By Banks
March 2007
Number Number
Banks
20
15
10
5
0

Number of
Extensions
35
30
25
20
15
10
5
0
Jun
03
Summary of Extensions
Jan 03 - Dec 06
Dec
03
Jun
04
Dec
04
Morning Settlement
Daily Settlement Session
Evening Settlement Session
Jun
05
Dec
05
Jun
06
Dec
06
Number of
Extensions
35
30
25
20
15
10
5
0

Liquidity Management – Payment
Settlements
• Some observations on RTGS
payments.
• How liquidity is managed in RITS.

RTGS payment statistics
Daily average
2006
Peak days
Number 25,837 42,425 (30 Mar)
Value (excl. RBA repos) $156 b $258 b (20 Dec)
Liquidity:
Overnight ESA balances $0.8 b $0.7b
RBA Repos (first leg) $8.7 b $11.7 b
Total $9.5b $12.4 b
Ratio of liquidity to payments 6.0% 4.8%

16000
14000
12000
10000
8000
6000
4000
2000
0
RITS and Feeder System Transactions
Average Daily Number by Value Band
March 2007
Number Number
Up to
$100k
$100k
to $1m
$1m
to $2m
$2m
to $5m
$5m
to
$10m
$10m
to
$20m
SWIFT
Austraclear
RITS
$20m
to
$50m
$50m
to
$100m
Over
$100m
16000
14000
12000
10000
8000
6000
4000
2000
0

100
80
60
40
20
0
RITS and Feeder System Transactions
Average Daily Value by Value Band
March 2007
$ billion $ billion
Up to
$100k
SWIFT
Austraclear
RITS
$100k
to $1m
$1m
to $2m
$2m
to $5m
$5m
to
$10m
$10m
to
$20m
$20m
to
$50m
$50m
to
$100m
Over
$100m
100
80
60
40
20
0

70
60
50
40
30
20
10
0
RITS and Feeder System Transactions
Average Daily Time To Settle by Value Band
March 2007
Mins Mins
Up to
$100k
$100k
to $1m
$1m
to $2m
$2m
to $5m
$5m
to
$10m
$10m
to
$20m
$20m
to
$50m
$50m
to
$100m
Over
$100m
70
60
50
40
30
20
10
0

35
30
25
20
15
10
5
0
RITS and Feeder System Transactions
Average Daily Value by Time Band
March 2007
$ billion $ billion
Pre
9:15
SWIFT
Austraclear
9:15-
10:00
RITS
10:00-
11:00
11:00-
12:00
12:00-
13:00
13:00-
14:00
14:00-
15:00
15:00-
16:00
16:00-
17:00
17:00-
Close
35
30
25
20
15
10
5
0

70
60
50
40
30
20
10
0
Ratio of Liquidity to Payments
Ratio Ratio
Banks
Average
70
60
50
40
30
20
10
0

Reserving Funds Using An ESA Sub-Limit Sub Limit
ESA balance
Sub-limit:
$300m
$200m
Priority transactions
access up to $300m
Minimum balance
(ESA cannot be
overdrawn)
$0
Active transactions
access
excess over sub-limit
ie up to $100m

1200
800
400
0
Bank Liquidity Management Strategy 1
2 April 2007
$ million $ million
07:00
ESA balance
09:00
Outstanding RBA Repo
ESA Sublimit
11:00
13:00
15:00
17:00
1200
800
400
0
19:00

1200
800
400
0
Bank Liquidity Management Strategy 2
2 April 2007
$ million $ million
07:00
09:00
ESA balance
11:00
ESA Sublimit
13:00
Outstanding RBA Repo
15:00
17:00
1200
800
400
0
19:00

LIQUIDITY EFFICIENT QUEUE DESIGN
Centralised queuing:
RTGS Queue uses
“Next Down Looping”
to rapidly redistribute
liquidity
Bilateral “Auto-Offset”
is a powerful gridlock
preventer
transaction
transaction
transaction
transaction
transaction
Settle or leave on Queue
Settle or leave on Queue
Settle or leave on Queue
Settle or leave on Queue
Settle or leave on Queue

%
30
25 25
20
15 15
Auto-Offset Settlements & Liquidity
Per cent of total settled payments
Value of Auto-Offset settlements (LHS)
2003
RTGS liquidity (RHS)
2004
2005
2006
2007
%
7
6
5
4