Bank Operations, Payments and Treasury
Bank Operations, Payments and Treasury tests the plumbing: how accounts are opened and controlled, how payments move and when they become final, how correspondent balances and FX positions are managed, and how treasury keeps the balance sheet funded and within limits.
Payments and settlement
- RTGS settles individual payments in real time with central-bank money and immediate finality; ACH and card schemes batch and net, so settlement risk sits between authorisation and settlement.
- SWIFT is a messaging network, not a settlement system; ISO 20022 (MX) is replacing MT messages with richer structured data that supports straight-through processing and sanctions screening.
- Correspondent banking uses nostro accounts (our money held at them) and vostro accounts (their money held with us). Herstatt risk - paying out before your counter-currency is received - is mitigated by payment-versus-payment arrangements such as CLS.
- Intraday liquidity and cut-off times matter: a payment missed today's cut-off changes its value date and triggers interest compensation.
Treasury and ALM
- Treasury manages the liquidity buffer, the funding mix and maturity gaps, prices deposits and loans through funds transfer pricing, and monitors FX and interest-rate positions against limits.
Worked example
A bank's USD books show assets of 24m and liabilities of 20m, giving a net open position of 4m long. Tier 1 capital is 30m and the internal limit is 10% of capital, i.e. 3m. The desk is 1m over limit. Reasoning: net open position nets assets against liabilities (and includes off-balance-sheet commitments), is converted at the reporting rate, and is measured against capital rather than against total assets; the fix is to sell 1m USD or fund an offsetting liability before the next limit report.
Traps that cost marks
- Confusing nostro with vostro.
- Treating a SWIFT message as proof of settlement.
- Assuming a payment is final at initiation rather than at settlement on the receiving system.
- Ignoring value dates when calculating interest and FX compensation.
- Monitoring positions at month-end only instead of daily against limits.