Download - Best Practices in Liquidity Mgmt
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2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC. 2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Liquidity management best practices in an evolvingregulatory environmentGlobal Payments Conference
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2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Agenda
Rate environment looking forward(Why would we want to lookback?)
A reading assignment:2300 pages
Why does it matter to meand my business?
Overkill or reallybeneficial?
Tools you can use
The economy andthis presentation:
Starting slowly andpicking up steam
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2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Future Rate Environment: the FOMCs view
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1012
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2012 2013 2014 2015
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1.251.51.7522.52.753.754.5
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2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Zero interest rates
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The Fed continues toprime the pump
Source: Wells Fargo Securities, LLC
Recent actions by the Fed
Extension of exceptionally lowrate language from late2014 to at least mid 2015.
Reintroduction of mortgage-backed securities purchases:$40 billion per month. Nospecified cap
Reintroduction of Treasurysecurities purchases: $45billion per month. No specifiedcap
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2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
The Dodd-Frank Act
Executive summary of topics Risk-based approach to
financial industry regulation
New regulation ofsystematically risky institutions
Focus on consumer protection
Limits on bank investmentactivities
Mortgage regulation
Genesis of several financial/oversight committees
Signed into law on July 21,2010Implementation of changeslikely over next several years
Dont ever forget2008 Bad mortgages Incomplete securities
ratings Alphabet soup: MBS,
SIVs, CDOs, AAA Housing crash Runs on banks and
money funds
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21 st Century Reform
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2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
Dodd-Frank and the FDIC
1933 - $2500
1934 - $5000
1950 - $10,000
1966 - $15,000
1969 - $20,000
1974 - $40,000,
1980 - $100,0002008 (retroactive) -$250,000
Unlimited FDICinsurance was in placedue to temporarylegislation.
Historically, weve hadlimits.
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Deposit insurance levels
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2013 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.
FDIC insurance assessment shift to assets
FDIC model evaluatesassets based on risk
Assets = entire balancesheet (loans, deposits,etc.)Each financial institutionis assessed different rateShift from domesticdeposits to assets lesstangible equity
New methodology effective April 1, 2011
Whats theimportance of theFDIC model change?
How does this impactme and my business?
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Still a cost of doing business
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Money market mutual fund reform
Type of mutual fund registeredunder the InvestmentCompany Act of 1940Convenient and cost-effectiveway to have a diversifiedinvestment in money marketsecuritiesExist under rule 2a-7, allowingamortized cost method ofvaluation: penny roundingOnly money funds useamortized cost methods; allother mutual funds value NAVusing market value ofsecurities
Source: Treasury.gov: FSOC Proposed Recommendations Regarding Money Market MutualFund Reform
Money market mutual
funds have been ascomfortable as an oldpair of blue jeans
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Money funds as they exist today
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Money market mutual fund reformTimeline
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May 2010Reform ofRule 2a7
May 2011 SEChosted round tableto discuss morereforms. FSOCrecommendedstructural reforms.
August 2012, SECChair Mary Schapiroannouncedcommissionerswould not supportpublic comment
September 2012,FSOC, led by TimGeithner, took upthe cause
Feb 2013 Lastday for comment
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Money market mutual fund reform
Removes the specialexemption allowingmoney market fundsto use amortized costaccounting and/orpenny rounding.
Objective is to increasetransparency of moneyfunds, with NAV basedon actual market valueof securities.
What has beencomfortable may end upas an unacceptable
investment for someSome say floating NAVwould makeshareholders more likely to redeem withfluctuation
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Floating Net Asset Value
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Money market mutual fund reform
Would require moneyfunds to have a reserve ofassets up to 1%-3% toabsorb day-to-day
fluctuations in the valueof funds securities
Would be an appropriatetransition period and
could be raised throughvarious methods
Opponents point outthat runs would belikely should a fundexceed its capital
buffer.
Fund yields likely would suffer.
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NAV Buffer
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Money market mutual fund reform
Requires 3% of shareholdershighest account value inexcess of $100,000 during the
previous 30 days to be heldback for redemption for a 30 -day period.
Objective is to diminish thebenefits of redeeming sharesquickly when trouble arisesand to reduce the damage tonon-redeeming shareholders.
1 Receivables Management for the Long Term , Aberdeen Group,August 2012.
Full overnightliquidity is lost. Manyclients indicate thismakes money fundsobsolete for their use
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Minimum balance at risk(MBR) Holdback
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Money market mutual fund reform
Floating NAV
Stable NAV with NAVBuffer and MBR Holdback
Stable NAV with NAVbuffer of 3% and othermeasures, including:
more stringentdiversification requirements
increased minimum liquiditylevels
So tell me, whatsgoing to actuallyhappen?
The alternatives arenot mutuallyexclusive.
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Alternatives
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Evolving regulation
Liquidity coverage risk ratio- Ensures banks have an
adequate stock of High Quality
Liquid Assets (HQLA) to meet astress test of 30 calendar daysof outflows
- Initial proposal: 100% ratio,2015 implementation, limited to
sovereign bonds and highquality corporate bonds
What is being done to
keep my bank safe?
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Basel III: Global regulation
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Evolving regulation
January 2013 update- LCR still implemented in 2015 with
minimum requirement at 60%
- Rises by 10% each year; 100%
LCR in 2019- Asset requirements less stringent
Greater emphasis on cashflow forecasting- Banks will place more emphasis on
stickier assets tied to yourbusiness. More competition foryour dollars?
What is being done to
keep my bank safe?
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Basel III: Global regulation
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Where does this leave my company?
Rates are low. What is outthere that is safe and offerscompetitive yields?
Should I take a look at myinvestment policy? (Yes,and continue looking at itover the next few months.)
What are other companiesdoing?
Your investment
policy will dictate yourinvestment choices
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Regulation wrap-up
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Sweeps
Sweep accounts provide an automated solution forovernight investingAccess to invested funds, or lines of credit, is alwaysavailable
No need to set a manual investment position everydayCreate efficiencies
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Sweeps
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Off ShoreSweep
CommercialPaper
RepurchaseAgreement
Credit Sweep
MMKT
Mutual Funds
Fed Funds
Overnight Eurodollar Investment
CP Investment
Collateralized Repo Investment
Sweep to available line of credit
Various Money Market Funds
Domestic Correspondent Banks Only
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Wholesale time deposits certificate ofdeposit
Ideal for customers who can sacrifice liquidity forhigher yieldsMinimum balance requirementsVarious Terms 1 through 144 months
Various payment options for interest Monthly
Quarterly
Annually
At maturity
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A full array of fixed income securities
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Money Market
Mutual FundsVRDOsCommercial Paper
U.S. TreasurySecurities
U.S. AgencySecuritiesBrokered CDs
MunicipalSecurities
CorporateBonds
Mortgage-BackedSecurities
INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUEWells Fargo Securities is the trade name for the capital markets and investment banking servicesof Wells Fargo & Company and its subsidiaries, including Wells Fargo Securities, LLC, a memberof NYSE, FINRA, NFA, and SIPC, Wells Fargo Institutional Securities, LLC, a member of FINRAand SIPC, and Wells Fargo Bank, National Association. Wells Fargo Securities, LLC, carries andprovides clearing services for Wells Fargo Institutional Securities, LLC, customer accounts.
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BrokerageSelf directed strategy
Fixed income and equity investingInvestment representatives consultative approachMarket resources and expertiseAnalysts and investment strategists, reporting,
accounting, safekeepingTraded products corporate debt, government /agency securities, money market funds
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INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUEWells Fargo Securities is the trade name for the capital markets and investment banking servicesof Wells Fargo & Company and its subsidiaries, including Wells Fargo Securities, LLC, a memberof NYSE, FINRA, NFA, and SIPC, Wells Fargo Institutional Securities, LLC, a member of FINRAand SIPC, and Wells Fargo Bank, National Association. Wells Fargo Securities, LLC, carries andprovides clearing services for Wells Fargo Institutional Securities, LLC, customer accounts.
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Managed OptionsExternally managed approach
Customized portfolios = separately managedaccountsMoney Market Mutual Funds (Proprietary)
Short duration fundsOnline reporting servicesInvestment policy creation and review
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Investments: NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE
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Questions?
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