Shadow BankingPerspective from ALM Treasury
Stéphane DeniseGroup ALM Deputy Head
Tuesday 15th May 2012
What is Asset and Liability Management (ALM)
Asset and Liability Management is, with Treasury, the ‘bank within the bank’ for liquidity risk management
All liquidity demands and supplies from business lines are centralized to ALM Treasury through transfer mechanisms, including the cost of liquidity. Transfers are executed either analytically when within the same legal entity and with actual transactions when between different legal entity (branch, subsidiary…)
ALM Treasury is in charge of managing the liquidity risk of the Group that results from imbalances from internal (business lines’) demands and supplies which are subject to limits. This is done through actual funding transactions: secured / unsecured, public / private…
*The Clearing House: 2 November 2011
Agenda
3
1. A US retail bank perspective
2. A Group funding perspective
3. A few remarks on Shadow Banking
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Bank of the West Treasuryis located in Walnut Creek
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Walnut Creek
A US retail bank
*The Clearing House: 2 November 2011
Assets Liabilities
Investment Securities
Small Business Loans
Commercial Loans
Income Property Loans
Construction Loans
Real Estate Loans
Installment Loans
Other Loans
Leases
Reserve
Non Earning Assets
8.5
2.1
8.1
6.9
2.3
11.0
10.8
1.9
2.8
-0.5
9.4
Total 63.3
Demand Deposits
Checking
Savings
Money Market
CDs
Money Market Borrowings
FHLB Advances
Notes
Equity
9.2
2.3
1.8
8.0
7.5
6.3
10.0
0.2
8.8
Total63.3
Non Costing Liabilities0.7
Wholesale CDs8.5
US Agencies
Fannie Mae (3Q.11): mortgages = $2.9tn(http://www.fanniemae.com/ir/pdf/earnings/2011/q32011.pdf)
Freddie Mac (3Q.11): mortgages = $1.8tn(http://www.freddiemac.com/investors/er/pdf/10q_3q11.pdf)
Ginnie Mae (3Q.11): guaranteed securities = $1.6tn(http://www.sifma.org/research/statistics.aspx)
FHLB (3Q.11): advances + mortgages = $0.4tn(http://www.fhlb-of.com/ofweb_userWeb/resources/11Q3end.pdf)
This sums to $6.7tn
This represents 46% of US GDP ($14.6tn) and 50% of US Mortgages ($13.5tn) that are financed by US Agencies, explicitely or implicitely guaranteed by US Government (http://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm)
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Agenda
8
1. A US retail bank perspective
2. A Group funding perspective
3. A few remarks on Shadow Banking
Offer different investment instruments to fund the activities
The need for ‘one issuer’ in a Group and the conflict with diversification requirements from investors
Funding instruments diversification that could be qualified as ‘shadow banking’:
Securitization Covered Bonds Repos ABCP Conduits
Manage both the encumbrance and the cannibalisation issues
*The Clearing House: 2 November 2011
Agenda
10
1. A US retail bank perspective
2. A Group wide perspective
3. A few remarks on Shadow Banking
Shadow Banking helps solving issues
Demand for diversification
Demand for “low risk” assets
Should Central banks be considered shadow banks?
Address global macroeconomic imbalances
Pensions financing and ageing populations
Mark-to-market pro-cyclicity
*The Clearing House: 2 November 2011
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13
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