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How banks will view your deposits
The introduction of the new Basel III banking liquidity regulations has opened a window of opportunity for financial institutions in Australia to work with their bank providers on innovative strategies and solutions which could benefit both parties, according to Kevin Wong, Director in Client Insights & Solutions, in ANZ Bank’s International and Institutional Banking group.
Wong, who will be addressing the topic at the My Platform Rules conference on the Gold Coast next week, said it was clear that the Liquidity Coverage Ratio (LCR) requirements under Basel III was having flow-on implications for bank customers and their deposits.
To put it bluntly, retail customers with small amounts of money are now more attractive as depositors than institutional customers and can therefore expect higher rates from their bank. Wong said: “Financial institution customers will have to reconsider the balance of their cash liquidity, yield and operational objectives in the context of these bank reforms.”
The new banking regulations took effect last month under APRA’s version of the Basel III LCR short-term liquidity requirements.
As a result, banks are focusing on deposit product development, he said, which provided an opportunity for new customer strategies and solutions.
The LCR framework tests the run-off characteristics of banks’ funding liabilities over a 30-day stress period and is aimed at ensuring banks hold greater amounts of highly liquid assets and reduced their reliance on short term funding. “The framework is highly prescriptive in terms of the run-off assumed for various categories of depositors and funding instruments,” Wong said. “Retail and SME deposits are considered very ‘sticky’ relative to wholesale client deposits. Within wholesale, distinction is made between financial institution and non-financial institution monies, where the former are generally considered to be fully at risk of run-off in the stress test period.”
In short, there is a hierarchy of deposits considered ‘valuable’ by regulators for banks under the new short-term liquidity rules. As such, banks will be more granular in how they source, manage and pay for different funding sources, especially customer deposits. In the context of wholesale financial institution customers, operational accounts are especially important, as are structured deposits with terms beyond 30 days. Intermediated deposits may also receive preferential treatment. At call deposits are least useful for banks in managing their liquidity requirements.
