One of the consequences of the COVID-19 pandemic is that, for months on end, a lot of people had a lot of money sitting in bank deposits, with no place else to go. No foreign holidays, no live events, no visits to restaurants. At the same time, quantitative easing to finance the cost of employee furloughs and other measures to support business has meant even more liquidity sloshing about. It’s almost the inverse of the situation during the liquidity crisis of 2008: instead of banks hunting for funding they’ve got a glut of deposits on their balance sheets.
Meanwhile, the practice of central banks aggressively cutting interest rates has put additional pressure on banks’ net interest margins (NIM). All of this has had an impact on fund transfer pricing (FTP) methodologies. How should the Treasury function in banks respond? This whitepaper explores three strategies the Treasury function in banks can use to respond to the excess of deposits.
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