A lasting effect of the financial crisis has been the disruption to the flow of wholesale funding that banks previously enjoyed. Securitization markets are still nearly closed, and the cost of long-term, senior unsecured funding, while down from its crisis peak, is still well above pre-crisis levels. Also, banks need to raise deposits, deleverage and find additional funding to fulfill new liquidity regulations.
In Oliver Wyman’s report, Attracting and Managing Corporate Deposits, we find that corporate deposits could be an important source of new liquidity. Corporations have been unwilling to invest because of the uncertain macroeconomic conditions and tighter credit arising from banks deleveraging. Corporate cash levels are likely to remain elevated in the medium term as interest rates remain low. However corporate treasurers are likely to find new ways to invest this cash through dynamic discounting or direct lending – stiff competition for corporate deposits.
