GFF: Financial institutions need to be prepared for potential volatility in 2024
02 February 2024 Luxembourg
Image: Sophie Downes
Financial institutions need to be prepared for volatility in 2024, Andreas Bohn, partner at McKinsey & Company, observed at this year's Global Funding and Financing summit.
In a panel discussion on liquidity management considerations for 2024, the speakers emphasised the need for risk mitigation strategies due to geopolitical and economic uncertainties.
Federico Becerra, director and head of treasury at Clearstream, aims to apply this by ensuring that exposures are fully collateralised. “We need to ensure that we have enough sources of liquidity to fulfil our payment obligations in a timely manner,” he claimed.
Becerra views the upcoming banking regulations and market discipline through the Central Securities Depositories Regulation (CSDR) as an effective means of achieving this.
“The aim of the regulations is mainly to provide safety efficiency in the settlement and custody space,” he argued. “We don't see this as a burden, but more as a confirmation that what we are doing is in line with what we are supposed to do.”
Diversifying funding sources and managing asset allocation of liquidity reserves is crucial for banks to maintain stability, asserted Tom Chater-Duchesne, treasury manager at Revolut.
“Digitisation and the speed with which your cash can move around means we need to be very nimble,” he explained.
“Whenever we are considering the monetisation value of our bond portfolio, we will always look at that true monetisation value, rather than any book or redemption value that may be in the future.”
Meanwhile, infrastructure providers, such as clearing houses, face unique challenges in managing fluctuating balances and demonstrating liquidity, revealed Thomas Kurian, head of treasury and banking at ICE Clear.
Kurian believes careful portfolio structuring and coordination is essential for mitigating these challenges, viewing stress testing as a critical practice for businesses.
“We engage in a continuous process of contingency planning, default management testing and liquidity exercises. This way, we are prepared and have run through the rapid exposure drills and the default runbook steps multiple times."
ICE Clear is particularly focused on the SEC mandatory clearing rules, which come into effect in December 2025 and will affect the US treasury market.
Kurian added: “The market community will have to figure out all of the operational legal and infrastructural aspects to make sure we are ready. Even though it sounds like it is a long way away, it is important that we make a head start.”
In a panel discussion on liquidity management considerations for 2024, the speakers emphasised the need for risk mitigation strategies due to geopolitical and economic uncertainties.
Federico Becerra, director and head of treasury at Clearstream, aims to apply this by ensuring that exposures are fully collateralised. “We need to ensure that we have enough sources of liquidity to fulfil our payment obligations in a timely manner,” he claimed.
Becerra views the upcoming banking regulations and market discipline through the Central Securities Depositories Regulation (CSDR) as an effective means of achieving this.
“The aim of the regulations is mainly to provide safety efficiency in the settlement and custody space,” he argued. “We don't see this as a burden, but more as a confirmation that what we are doing is in line with what we are supposed to do.”
Diversifying funding sources and managing asset allocation of liquidity reserves is crucial for banks to maintain stability, asserted Tom Chater-Duchesne, treasury manager at Revolut.
“Digitisation and the speed with which your cash can move around means we need to be very nimble,” he explained.
“Whenever we are considering the monetisation value of our bond portfolio, we will always look at that true monetisation value, rather than any book or redemption value that may be in the future.”
Meanwhile, infrastructure providers, such as clearing houses, face unique challenges in managing fluctuating balances and demonstrating liquidity, revealed Thomas Kurian, head of treasury and banking at ICE Clear.
Kurian believes careful portfolio structuring and coordination is essential for mitigating these challenges, viewing stress testing as a critical practice for businesses.
“We engage in a continuous process of contingency planning, default management testing and liquidity exercises. This way, we are prepared and have run through the rapid exposure drills and the default runbook steps multiple times."
ICE Clear is particularly focused on the SEC mandatory clearing rules, which come into effect in December 2025 and will affect the US treasury market.
Kurian added: “The market community will have to figure out all of the operational legal and infrastructural aspects to make sure we are ready. Even though it sounds like it is a long way away, it is important that we make a head start.”
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