A healthy balance
managing liquidity
Against the background of the rapid organic expansion in our business,
combined with strategie initiatives and large acquisitions over recent years,
solvency has become a scarce and valuable commodity. It is essential that we
more dynamically manage our balance sheet, make absolute best use of what
we have, and at the same time fund our operations at the lowest possible costs
consistent with our traditionally healthy liquidity, solvency and risk profiles.
Solvency management
Controlling risk
Euro advantages
6 What'sNewS Issue 3 March 1999
As part of this ongoing effort, Eugen
Buck has been appointed to head a
new group whose task will be to manage
Rabobank Internationals (RI) balance
sheet, solvency, liquidity,
and capital, as well as the
capital market activities, on
a global scale. Based in
London, he will report to
the managing board of RI
through Bill Cuthbert,
work actively with global
product and business
managers within the
context of our evolving
global business strategy,
and rely on control RI for
the production of all
management information
(see related article on the
budget on pages 10-11).
'Dynamic balance sheet
management has become a
crucial tooi for RI,' says
Buck. 'While member banks have their
central treasury, until now there has been
no equivalent entity within RI. However
the need for such active treasury
management has become abundantly
clear, particularly against the background
of our evolving customer focus strategy
and integration of our revantped global
financial markets activities. Our operation
should be looked upon not as a profit
centre but a staff function - comparable
to credit risk management, market risk
control, control RI, or network
development and support. We will work
closely with all of them.'
Among Buck's ongoing initiatives has
been setting a framework for internat
centres of competence (COC) which act as
the backbone of the bank's liquidity
management. Offices with demand for
short-term funding can now more readily
tap internal sources rather than the open
marketplaee; by the same token, offices
with excess liquidity place it with the
respective COC. The benefits are clear: the
need for external unsecured interbank
Left to right, Patrick Mitchell, Buck Orgen, Haijo Dijkstra. Not pictured, Dick Visser
lending has been cut by 40 percent and
overall internal flows increased threefold
in 1998. Going forward, we will be setting
balance sheet targets and ratios to control
the structure and growth of assets as well.
In a significant move on the solvency side,
allocations will henceforth be centrally
determined and proactively managed, in
close consultation with global business
managers and general managers. New
initiatives will improve netting techniques
and centralize solvency exposure.
Moreover, standardized securitization
vehicles will be developed to further free
up solvency. Finally, the new unit will
look at how capital in the offices
throughout our network is actually being
allocated, managed, and financed; changes
can be expected on this front.
The management of liquidity risk in the
balance sheet is one of the new group's
key responsibilities. Based on management
information from control RI, and in
consultation with market risk control,
maximum net cash outflows will be
restricted in an effort to control short
term liquidity risk. Moreover, an intensive
effort is underway to improve the bank's
structural liquidity by balancing our core
assets and liabilities and lengthening the
maturity profile on the liabilities side (all
within the prudential guidelines set by the
funding policy and liquidity risk
committee). Our funding initiative, under
Rabobank Nederland's (RN) global
liability manager Haijo
Dijkstra, is set against the
backdrop of a more
cautious economie climate
and the arrival of the euro.
We have a substantially
higher 1999 wholesale
funding mandate and our
approach to the market is
being fundamentally
revamped. Specifically, just
as we globalize our
product focus, we also
intend to tap a more
diverse number of
international markets
using a wider and more
flexible range of funding
instruments. At the same
time, we will strive at all
times to achieve full transpareney in our
actual funding costs.
Whereas we used to issue 50 percent of
our long-term funding in 15 different
currencies, 11 of these have now
disappeared. The euro has eliminated a
number of arbitrage opportunities (as well
as currency risks), while at the same time
it has provided for a more liquid, trans-
parent, and efficiënt pan-European market
base. It is increasingly being viewed as a
viable dollar alternative for global
institutional investors including asset
managers, insurance companies, pension
funds and central banks. We are tapping
this demand as well as actively targeting a
broader range of clients and geographical
markets; these efforts are also being made
on behalf of member banks, who take a
substantial part of the money raised and
use the proceeds to fund operations on
behalf of their own customers.
