Research & Thoughts

Funding and Liquidity

Reduce the cost WITHOUT limiting your business

Driven by scarcity of capital and regulatory impact, the cost of funding and liquidity, already too high, threatens to rise to levels that will simply be unsustainable. The industry urgently needs real solutions to regain control. Capco believes strongly that cost of funding can be lowered. Much greater efficiency and effectiveness with capital are real possibilities. So is improved business performance. But, to secure real benefits, change will be required.

Coping with the impact of new regulations – not whether or when but how?
Successfully navigating the tough new funding liquidity landscape is a challenge. It demands clear and robust routes to success. Institutions need to get funding costs down. And they need to assure required liquidity levels without, literally, breaking the bank.

New rules demand new tools
In this paper we propose four next-generation treasury tools. Each is designed to help banks reach their desired goals in the new landscape. They can be applied swiftly to achieve measurable positive impacts and sustainable competitive advantage.

The key areas involved are:

  • effective collateral management
  • business line ALM
  • pricing the cost of liquidity
  • focus on new sources of funding

The quantifiable benefits include:

  • lower funding costs
  • reduced liquidity buffer costs
  • more cost-effective initial product selection,
  • identification of new and sustainable funding sources

True funding maturity means going ‘beyond compliance’
Capco’s experience confirms that there is a ‘sliding scale’ of funding maturity. Institutions exhibiting the greatest maturity have already gone beyond compliance. They adopt a more centralized and coherent approach to the diverse issues involved. A few of them are even at the point of optimized risk management and risk pricing: full and current understanding of the funding risks drives their asset side selection. In today’s market, that is an enviably competitive position to be in. It is, as our paper shows, also an achievable one.

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