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Externalizing the management of liquidity buffer

27.10.2016

The current context of very weak yields on the lowest risk assets has made liquidity buffer management much more complex for banks. Against this backdrop, outsourcing this service to an asset manager carries a number of advantages.

This obligation was introduced by Basel III regulation on the liquidity coverage ratio in 2015 and aims to ensure that banking establishments have sufficient liquidity to meet any financial commitments for 30 calendar day period in the event that a liquidity stress scenario prevents them from refinancing on the market.

Which choices for banks ?

A bank can decide to manage its liquidity buffer in-house and will have two options in this case. It can decide to manage it via its own proprietary trading book, which uses very liquid assets, with very high rotation rates. On the other hand, banks can entrust this business to treasury departments that buy bonds, but generally use a “hold to maturity” passive-type management approach. Entrusting liquidity buffer management to an asset manager enables banks to adopt a more balanced approach, with an active fund management method across a wide range of assets, and a longer timeframe than mere trading.

Customized asset management

When management is delegated, investment in a UCITS is the most simple solution, but accounting standards are set to push banks towards a discretionary asset management solution. In this system, structuring of the investment mandate is key and the mandate must be adaptable and easily flexible to react to any changes. Risk management can change over time, as can the bank’s targets, as it seeks to display different levels of result, depending on the situation. Within the overall allocated amount, capital gain and loss management is another criterion to factor in.

Natixis Asset Management’s mix and matchable approach

Natixis Asset Management has set up a comprehensive offering in this segment, on the back of its vast experience in managing institutional products, fixed income and allocation. Thanks to this comprehensive range set up by the fixed income team, Natixis Asset Management can meet each bank’s specific requirements by implementing an active and diversified management approach.

Read the “Liquidity Buffer management: why do banks use asset managers’ services?” insight

Find out more about the Basel III regulation

Natixis Asset Management – Asset management company regulated by AMF under n°GP 90-009 – Limited Liability Company, Share Capital €50 434 604.76 - RCS Number 329 450 738 Paris - Registered Office: 21 quai d’Austerlitz, 75013 Paris.