Proactive Liquidity Management Pays

28 May 2010

Rule Financial's new White Paper The Liquidity Gap claims that the banking industry is missing an opportunity by making compliance an end in itself.

It argues that where banks have invested in a complete review and overhaul of their liquidity controls and systems, adopting dynamic, proactive management of their resources, they’ve been able to achieve a genuine competitive advantage, profiting substantially from their optimised processes.

During one review, an unnamed major investment bank discovered a staggering US$14 billion of unused collateral it was subsequently
able to put back to work.

The Liquidity Gap is the work of Rule Financial’s Liquidity Management practice led by former banker David Goucher.

"While the liquidity crisis may be over, the storm hasn’t passed. Prices are still above pre-crisis levels and there is a serious possibility of a further liquidity event....” says Goucher in the document, “Many banks have appreciably improved their liquidity reporting
capabilities and are able to comply with the FSA reporting requirements, but few have significantly enhanced their internal liquidity and collateral management capabilities”.

The paper draws on the legend that “Cobblers’ children have no shoes” suggesting that although the major banks have the ability to offer their customers an excellent service, they can be guilty of not applying state-of-the-art standards to their own risk and liquidity
management operations.

Dr Chris Potts, Rule Financial’s recently appointed CEO, commented: “We hear a lot of aspirational talk about “thought-leadership” nowadays but The Liquidity Gap really delivers. It’s a timely and very interesting piece of analysis and a good read too. We’re looking forward to discussing some of its conclusions with our growing customer base in the investment banking sector, in both London and New York”.

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