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Banks’ international liquidity management in the future: What role can financial market infrastructures play?

Jeannette Capel, Senior Policy Officer, Payments Systems Policy Department, De Nederlandsche Bank


Abstract
Managing international liquidity and collateral is a challenge for banks, as they need to adapt to ever changing circumstances. These circumstances are now in a state of flux because of the financial crisis. Financial market behaviour has changed, the importance of high quality collateral has increased, new liquidity standards have been proposed and central counterparties will assume a greater role in the clearing of over-the-counter derivatives. There is no doubt that these trends will have a profound impact on banks’ liquidity and collateral management. This article examines these trends and comments on the role that financial market infrastructures and central banks’ arrangements can play in this context. If banks have the possibility during a crisis to transfer securities or cash promptly from one country to another, they can possibly solve an imminent local liquidity problem by using the excess cash or securities that they have elsewhere. Such solutions seem more necessary now than they were in the past, because current trends signal a greater need for collateral (so that banks can use their high quality assets more efficiently). Moreover, new fast communication technology requires that banks solve local liquidity issues before the word spreads.

Keywords
liquidity management, collateral, financial crisis, liquidity standards, central banks, financial market infrastructures


Jeannette Capel is a senior policy officer in the Payments Systems Policy Department of De Nederlandsche Bank (DNB), the central bank and prudential supervisor of the Netherlands. Her current area of expertise is the policy issues related to large value payments systems, but in her 14-year career at DNB Jeannette has covered many other policy areas as well. Since 2010, Jeannette has worked on a project on the future of international liquidity and collateral. In the past year, Jeannette — with several of her colleagues — actively discussed this topic with commercial banks on several seminars and conferences. Jeannette holds a PhD in International Economics from the University of Amsterdam. 


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