The real payments impacts from liquidity regulations

As a key theme for Sibos, there is a lot of discussion about the impact of regulations, and the unexpected consequences that all too often accompany new rules.

The BASEL III focus has been on ensuring banks are well funded to cope with problems that may occur in the market, with the particular focus on the failure of an entity involved in a transaction. To do that, naturally, the risk of doing business with each party has to be considered when undertaking each transaction.

In looking at the bank customer requesting a transaction, the risk will vary depending on many factors including credit ratings but also, and perhaps more importantly, by how well the bank knows that customer. Is this a customer who makes regular payment requests and has a deep relationship with the bank, or an organisation that only uses one product and makes irregular payments? The latter will be viewed as a higher risk and therefore will require more funding set aside to cover failure than the former.

Increasing the collateral to cover the liquidity required for higher risk customers and payments naturally makes this more costly to the bank. That cost may be passed on to customers. The implication from several speakers at Sibos is that banks will be even more focused on servicing only the customers who have multiple products and are regular users of their services and will discourage the single product customer who makes only occasional use of the service. I could see smaller corporates suffering from higher costs for their payments.

But I also wonder how some of the banks payments infrastructure will handle this change in emphasis. The move from handling a broad range of clients with a spread of payments to a smaller set of customers with much higher volumes could challenge some payments environments. Once again agility is needed in the payments systems to respond to both the direct and indirect consequences of regulation.