The Handbook of ALM in Banking (2nd Edition)
First published:
ISBN: 9781782723455
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Instruments for Secured Funding
Federico Galizia and Giovanni Gentili
Instruments for Secured Funding
Introduction
Bank Capital and Liquidity
ALM in the Context of Enterprise Risk Management
The New Basel Standards on IRRBB and Their Implications for ALM
Measuring and Managing Interest Rate and Basis Risk
The Modelling of Non-Maturity Deposits
Modelling Non-Maturing Deposits with Stochastic Interest Rates and Credit Spreads
Managing Interest Rate Risk for Non-Maturity Deposits
Replication of Non-Maturing Products in a Low Interest Rate Environment
Managing Mortgage Prepayment Risk on the Balance Sheet
Considerations for ALM in Low and Negative Interest Rate Environments
Credit Spreads
Hedge Accounting
Supervisory Views on Liquidity Regulation, Supervision and Management
Measuring and Managing Liquidity and Funding Risk
Managing Reserve Assets
Instruments for Secured Funding
Asset Encumbrance
Capital Management
A Global Perspective on Stress Testing
Reverse Stress Testing: Linking Risks, Earnings, Capital and Liquidity – A Process-Orientated Framework and Its Application to Asset–Liability Management
XVAs and the Holistic Management of Financial Resources
Optimal Funding Tenors
Funds Transfer Pricing in the New Normal
Balance-Sheet Management with Regulatory Constraints
At the time of writing, a paradigm shift had taken place for bank wholesale funding. While retail deposits continued to function very similarly to the way they did prior to the 2007–9 financial crisis, markets, central bank and regulatory action were shifting banks towards secured funding. This applied to the money markets, where the traditional Libor-based unsecured lending was concentrated in overnight transactions and repurchase agreements (repos) had become the norm at longer terms,11Libor is the London Interbank Offered Rate. and also concerned medium- and long-term funding, with asset-backed securities (ABSs) and covered bond issuance complementing senior bonds, especially as the latter became vulnerable to bail-in regulations. There also continued to be significant reliance on central bank facilities, to the point where ABSs were being issued and “retained” by the same originators to be used for central bank refinancing.
In this chapter we explain the new paradigm, which covers short-term instruments (particularly the repo), medium- and long-term instruments, covered bonds and ABSs. In keeping with the aim of the book, these instruments are treated from the point of view
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