Payments Training Hub
Liquidity pool PAYMENT OPERATIONS STARTED LIVE 01 Liquidity pool - arrangement where a group of banks ACTIVE 02 Parent bank - subsidiaries draw on it as needed QUEUED 03 Participants contribute to a common fund - facility can provide short term QUEUED 04 Pooled the group manages EUR - 75 million as one position. QUEUED 05 Regulators - also require that pooling does not weaken QUEUED 06 Test pack - should include a simulated failure of one QUEUED A liquidity pool is an arrangement where a group of banks, often part of the same banking group, combine their liquidity for settlement purposes. Step 1 of 6 Liquidity pool STARTED Liquidity pool arrangement where a group of banks ACTIVE Parent bank subsidiaries draw on it as needed QUEUED Participants contribute to a common fund facility can provide short term liquidity QUEUED Pooled the group manages EUR 75 million as one position. QUEUED Regulators also require that pooling does not weaken QUEUED Test pack should include a simulated failure of one QUEUED A liquidity pool is an arrangement where a group of banks, often part of the same banking group, combine their liquidity for settlement purposes.
Parent bank may hold a central pool PAYMENT OPERATIONS IN PROGRESS LIVE 01 Liquidity pool - arrangement where a group of banks DONE 02 Parent bank - subsidiaries draw on it as needed ACTIVE 03 Participants contribute to a common fund - facility can provide short term QUEUED 04 Pooled the group manages EUR - 75 million as one position. QUEUED 05 Regulators - also require that pooling does not weaken QUEUED 06 Test pack - should include a simulated failure of one QUEUED The parent bank may hold a central pool at the central bank, and subsidiaries draw on it as needed, subject to limits and controls. Step 2 of 6 Parent bank may hold a central pool IN PROGRESS Liquidity pool arrangement where a group of banks DONE Parent bank subsidiaries draw on it as needed ACTIVE Participants contribute to a common fund facility can provide short term liquidity QUEUED Pooled the group manages EUR 75 million as one position. QUEUED Regulators also require that pooling does not weaken QUEUED Test pack should include a simulated failure of one QUEUED The parent bank may hold a central pool at the central bank, and subsidiaries draw on it as needed, subject to limits and controls.
Participants contribute to a common fund PAYMENT OPERATIONS IN PROGRESS LIVE 01 Liquidity pool - arrangement where a group of banks DONE 02 Parent bank - subsidiaries draw on it as needed DONE 03 Participants contribute to a common fund - facility can provide short term ACTIVE 04 Pooled the group manages EUR - 75 million as one position. QUEUED 05 Regulators - also require that pooling does not weaken QUEUED 06 Test pack - should include a simulated failure of one QUEUED Participants contribute to a common fund, and the facility can provide short term liquidity to a participant that is temporarily short, secured against the fund. Step 3 of 6 Participants contribute to a common fund IN PROGRESS Liquidity pool arrangement where a group of banks DONE Parent bank subsidiaries draw on it as needed DONE Participants contribute to a common fund facility can provide short term liquidity ACTIVE Pooled the group manages EUR 75 million as one position. QUEUED Regulators also require that pooling does not weaken QUEUED Test pack should include a simulated failure of one QUEUED Participants contribute to a common fund, and the facility can provide short term liquidity to a participant that is temporarily short, secured against the fund.
Pooled the group manages EUR PAYMENT OPERATIONS IN PROGRESS LIVE 01 Liquidity pool - arrangement where a group of banks DONE 02 Parent bank - subsidiaries draw on it as needed DONE 03 Participants contribute to a common fund - facility can provide short term DONE 04 Pooled the group manages EUR - 75 million as one position. ACTIVE 05 Regulators - also require that pooling does not weaken QUEUED 06 Test pack - should include a simulated failure of one QUEUED Pooled, the group manages EUR 75 million as one position. Step 4 of 6 Pooled the group manages EUR IN PROGRESS Liquidity pool arrangement where a group of banks DONE Parent bank subsidiaries draw on it as needed DONE Participants contribute to a common fund facility can provide short term liquidity DONE Pooled the group manages EUR 75 million as one position. ACTIVE Regulators also require that pooling does not weaken QUEUED Test pack should include a simulated failure of one QUEUED Pooled, the group manages EUR 75 million as one position.
Regulators require that pooling PAYMENT OPERATIONS IN PROGRESS LIVE 01 Liquidity pool - arrangement where a group of banks DONE 02 Parent bank - subsidiaries draw on it as needed DONE 03 Participants contribute to a common fund - facility can provide short term DONE 04 Pooled the group manages EUR - 75 million as one position. DONE 05 Regulators - also require that pooling does not weaken ACTIVE 06 Test pack - should include a simulated failure of one QUEUED Regulators also require that pooling does not weaken any single entity. Step 5 of 6 Regulators require that pooling IN PROGRESS Liquidity pool arrangement where a group of banks DONE Parent bank subsidiaries draw on it as needed DONE Participants contribute to a common fund facility can provide short term liquidity DONE Pooled the group manages EUR 75 million as one position. DONE Regulators also require that pooling does not weaken ACTIVE Test pack should include a simulated failure of one QUEUED Regulators also require that pooling does not weaken any single entity.
Test pack PAYMENT OPERATIONS COMPLETE LIVE 01 Liquidity pool - arrangement where a group of banks DONE 02 Parent bank - subsidiaries draw on it as needed DONE 03 Participants contribute to a common fund - facility can provide short term DONE 04 Pooled the group manages EUR - 75 million as one position. DONE 05 Regulators - also require that pooling does not weaken DONE 06 Test pack - should include a simulated failure of one ACTIVE The test pack should include a simulated failure of one member Step 6 of 6 Test pack COMPLETE Liquidity pool arrangement where a group of banks DONE Parent bank subsidiaries draw on it as needed DONE Participants contribute to a common fund facility can provide short term liquidity DONE Pooled the group manages EUR 75 million as one position. DONE Regulators also require that pooling does not weaken DONE Test pack should include a simulated failure of one ACTIVE The test pack should include a simulated failure of one member

Key points of this lesson, in order.

0:00 / 3:20 Step 1 of 6

Liquidity Pools and Shared Arrangements

Liquidity Management, Lesson 5 of 7, Narration 3:20, D07 Clearing, settlement and liquidity

SettlementLiquidityQueue

What you will learn

Your objective. By the end of this lesson, you will be able to explain liquidity pools and shared arrangements. A liquidity pool is an arrangement where a group of banks, often part of the same banking group, combine their liquidity for settlement purposes.

Why it matters. An analyst documents a pooling arrangement in the same way as any shared service.

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

  • Liquidity pool
  • Parent bank may hold a central pool
  • Participants contribute to a common fund
  • Pooled the group manages EUR
  • Regulators require that pooling
  • Test pack

Key terms

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...

Queue: A holding area in a payment system where payments wait for sufficient funds or for their turn to settle.

Payment flow diagram showing Liquidity Pools and Shared Arrangements.

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

Which of the following best describes liquidity pools and shared arrangements?

Takeaway and next step

What to remember

The arrangement must respect legal and regulatory boundaries, because funds in one legal entity cannot always be freely used to settle obligations of another, especially across borders.

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

Open the T2/TIPS Simulator →

Builds on "Gridlock and How Systems Resolve It".

Transcript and full text

Show transcript

A liquidity pool is an arrangement where a group of banks, often part of the same banking group, combine their liquidity for settlement purposes. Instead of each entity holding its own separate balance and managing its own queues, the group shares a common pool, and payments from any member can draw on the pool. This reduces the total liquidity the group needs, because a surplus in one entity can fund a deficit in another without a separate transfer. It also simplifies operations, because the group manages one position instead of many. Liquidity pooling is common in banking groups that operate in several countries or through several legal entities. The parent bank may hold a central pool at the central bank, and subsidiaries draw on it as needed, subject to limits and controls. The arrangement must respect legal and regulatory boundaries, because funds in one legal entity cannot always be freely used to settle obligations of another, especially across borders. Regulators may require that pooling does not weaken the standalone resilience of any individual entity, and that it can be unwound quickly if one member gets into difficulty. Shared arrangements also exist between unrelated banks in some systems, often in the form of a liquidity saving facility operated by the central bank or the system operator. Participants contribute to a common fund, and the facility can provide short term liquidity to a participant that is temporarily short, secured against the fund. These arrangements are designed to prevent a temporary shortage at one bank from disrupting the whole system. They are not a substitute for sound liquidity management at each bank, but they add a layer of resilience that benefits everyone. Compare pooled and separate liquidity with one group. A banking group has three entities with settlement balances of EUR 30 million, EUR 5 million, and EUR 40 million. Pooled, the group manages EUR 75 million as one position. When the smallest entity needs to send a EUR 45 million payment, it settles from the pool without delay. Without pooling, the same payment would queue against a EUR 5 million balance, and the entity would have to borrow or wait for an internal transfer from a sister entity, which takes time and creates its own payment. The saving is real, but it has a boundary. Funds held by the London entity cannot be used to settle an obligation of the Frankfurt entity without a transfer, because they belong to different legal entities in different jurisdictions. Regulators also require that pooling does not weaken any single entity. If the pool were unwound tomorrow, each entity must still be able to settle on its own, and the group must be able to prove it. An analyst documents a pooling arrangement in the same way as any shared service. The agreement terms, the per entity limits, and the unwind plan. The requirements should state the maximum any one entity may draw from the pool, the controls that stop one entity draining it, and the reporting that shows each entity's position separately as well as the pooled total. The test pack should include a simulated failure of one member, confirming that the other members can still settle, and a simulated unwind, confirming that each entity can operate standalone. A pool that has never been tested for unwind is a pool that will surprise everyone on the day a member gets into difficulty.

A liquidity pool is an arrangement where a group of banks, often part of the same banking group, combine their liquidity for settlement purposes. Instead of each entity holding its own separate balance and managing its own queues, the group shares a common pool, and payments from any member can draw on the pool. This reduces the total liquidity the group needs, because a surplus in one entity can fund a deficit in another without a separate transfer. It also simplifies operations, because the group manages one position instead of many.

Liquidity pooling is common in banking groups that operate in several countries or through several legal entities. The parent bank may hold a central pool at the central bank, and subsidiaries draw on it as needed, subject to limits and controls. The arrangement must respect legal and regulatory boundaries, because funds in one legal entity cannot always be freely used to settle obligations of another, especially across borders. Regulators may require that pooling does not weaken the standalone resilience of any individual entity, and that it can be unwound quickly if one member gets into difficulty.

Shared arrangements also exist between unrelated banks in some systems, often in the form of a liquidity saving facility operated by the central bank or the system operator. Participants contribute to a common fund, and the facility can provide short term liquidity to a participant that is temporarily short, secured against the fund. These arrangements are designed to prevent a temporary shortage at one bank from disrupting the whole system. They are not a substitute for sound liquidity management at each bank, but they add a layer of resilience that benefits everyone.

Compare pooled and separate liquidity with one group. A banking group has three entities with settlement balances of EUR 30 million, EUR 5 million, and EUR 40 million. Pooled, the group manages EUR 75 million as one position. When the smallest entity needs to send a EUR 45 million payment, it settles from the pool without delay. Without pooling, the same payment would queue against a EUR 5 million balance, and the entity would have to borrow or wait for an internal transfer from a sister entity, which takes time and creates its own payment. The saving is real, but it has a boundary. Funds held by the London entity cannot be used to settle an obligation of the Frankfurt entity without a transfer, because they belong to different legal entities in different jurisdictions. Regulators also require that pooling does not weaken any single entity. If the pool were unwound tomorrow, each entity must still be able to settle on its own, and the group must be able to prove it.

An analyst documents a pooling arrangement in the same way as any shared service. The agreement terms, the per entity limits, and the unwind plan. The requirements should state the maximum any one entity may draw from the pool, the controls that stop one entity draining it, and the reporting that shows each entity's position separately as well as the pooled total. The test pack should include a simulated failure of one member, confirming that the other members can still settle, and a simulated unwind, confirming that each entity can operate standalone. A pool that has never been tested for unwind is a pool that will surprise everyone on the day a member gets into difficulty.

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