Citi, Transaction Banking Academy, slides, here. Basel III New Liquidity standard.
Pozsar and Sweeney, Credit Suisse, Global Money Notes #1, here.
J.P. Morgan, A Defining Moment, here,
The definition of deposits has changed—the regulations, not the bank or the company, now classify cash deposits as either operating or non-operating.
Operating deposits require quantitative substantiation of their use to support transactional activity—everything else is non-operating.
For a company, both the return on and the bank’s appetite for their cash will depend greatly on the classification.
For a bank, the benefits of non-operating deposits are unlikely to cover the associated costs, and it is expected that the market will see a significant decrease in a bank’s ability to hold non-operating deposits on balance sheet.
In this new regulatory world, both companies and their banks will need to explore alternative placements for non-operating deposits.
Tracy Alloway, Bloomberg, It’s Time to Start Paying Attention to Bank Deposits Agains, here.
A long time ago, in a regulatory regime not so far away, bank deposits were simple things.
Under new Basel III rules, things are a touch more complicated.
Banks now have two types of deposits to contend with: operating and non-operating. The former are considered relatively “sticky” forms of funding in that they are unlikely to be suddenly pulled from the bank. The latter are classified as a form of short-term wholesale funding that has the potential to rapidly evaporate. Under Basel III, banks need to hold a buffer of ostensibly high-quality liquid assets (HQLA), such as government bonds, to cover non-operating deposits and protect themselves from a funding run.