Q: 2023 has been a year of turmoil for the banking sector, with companies looking for new sources of liquidity. How is the bank working with corporates and buy-side companies to support their liquidity needs?
A: We have many different client segments. The way we’ve designed our liquidity platform isn’t one-size-fits-all. Rather, we have designed it in a way that it meets the needs of our various clients.
Every client’s need is unique; there’s no one-size-fits-all because each has different objectives with their cash. Some clients want to actively manage their cash themselves and we have products for those groups. Some clients want to set rules about how they divide their cash investments, and we have products for that. There’s another group of clients that want us to manage the cash for them, and move that cash around, on a daily basis, depending on broader investment guidelines that they give us.
2023 has really validated the strategy that we’ve been on over the past 18 months. That strategy was all about having a robust ecosystem with products that are flexible and that our clients can use through the various liquidity and rate cycles. Depending on their risk appetite and risk profile, products like deposits and money market funds are good vehicles we have on our platform for clients looking to invest their cash short term. We also have repo [repurchase agreements] through our Securities Finance franchise, that offers institutional clients a secure way to deploy some of their cash.
Q: Have those needs changed over the years?
A: When you think about what happened during the Covid pandemic, there was a lot of cash in the system. I wouldn’t say, by any means, we had a crystal ball to project 525 basis points of rate hikes over a less than 18-month period. However, we expected that clients were going to want to do more with their cash as we came out of the crisis.
We knew that our clients wanted access to more products in terms of how they invest, and we expected increased focus on risk management. This year has validated our conviction. The environment is still uncertain, but we navigated a regional banking crisis, US debt ceiling and unprecedented rate hike all in a year.
Q: In the aftermath of the collapse of several banks in the US earlier this year, the response I heard the most was “we moved to BNY Mellon” – what was that period like for the bank? Did that period introduce the bank to a different type of client from new sectors?
A: That period was complex and unprecedented. There’s this debate – do you call it a crisis? Do you call it drama? I think it was a crisis, albeit so far, it’s been curtailed.
For some of our clients, it was unprecedented in terms of they had not seen anything like that. The interesting thing about that period was that the assets were liquid in and of themselves. Interest rate risk management was the area of focus.
during the recent crisis, the safety and soundness of our balance sheet was something that clients recognised and gravitated towards
What we did over that time was to make close partnership with our clients an even higher priority. Personally, my own priority was to be available to clients to help navigate their liquidity management needs. In doing so, my team and our leadership spent a lot of time supporting our existing clients and prospects worldwide. Some of the conversations were about educating them about liquidity, our credit profile, and interest rate risk management. There were a lot of joint calls, sometimes with our treasurer or even our [chief investment officer] for certain clients that found that useful.
BNY Mellon has been around for 239 years; we have that track record of stability and resilience. So during the recent crisis, the safety and soundness of our balance sheet was something that clients recognised and gravitated towards. We did have some clients that wanted to diversify how and where they placed their cash, and we were able to offer them solutions on and off our balance sheet. I’m incredibly proud of that. I’m incredibly proud of the depth and the breadth of offerings that we have, which meant that we helped our clients navigate a dynamic and complex environment.
Q: What exactly is a one-stop shop for cash management?
A: It’s helpful to answer that question through the view of one of our client personas who benefit greatly from a platform like LiquidityDirect. Earlier in my career, I worked in a treasury department. If you think about a treasury department, it’s about juggling various responsibilities and tasks, whether that’s cash management for payments or investments, on a daily basis. It is a routine for them to keep focused on efficiency and performance risk management.
For treasurers, it’s important to be nimble and efficient. They want one place where they can invest, manage their cash and get reports from a single platform.
Our expanded LiquidityDirect platform is, we believe, the answer to this challenge. Over the past 18 months, we’ve made investments and enhancements based off client feedback. Treasury workflow is integrated into a single platform for our clients. They can perform most if not all of the tasks that they require, be that analytics or unified reporting. There are over 100 investment vehicles within the platform that clients can invest in. We have analytics and the ability to do that seamlessly within one ecosystem that is tied to our custody platform with collateral capabilities. That’s what our one-stop shop means.
We recognise that the needs of our clients are dynamic. That one-stop shop is all about meeting our clients’ needs, particularly in this unique environment and operating in a way that they can meet all their strategic objectives in one single source.
Q: What were some of the drivers behind expanding the LiquidityDirect platform?
A: The platform has existed since 1997. It largely grew as a money market funds portal and continues to be quite innovative in the sense of being either the first, or one of the first, into the market with a portal of that size.
The genesis behind expanding LiquidityDirect as a platform was client focused, giving them more options, making it a true one-stop shop for their investment needs. We spent a lot of time as well thinking about the client experience – making access seamless and easy for clients to navigate and select cash investments on that platform.
Q: BNY Mellon now touches 20% of the world’s investable assets – how did that come about? How does that impact the bank?
A: We hold several leading positions in the global financial system and touching 20% of investable assets begins with the fact that we’re the world’s largest custodian. We’re also the largest agency securities lender and global collateral manager, and a top 10 asset manager. This means that we’re trusted by our client’s global clientele in providing and protecting their assets, providing optionality to grow those assets in a multifaceted way.
To illustrate, consider the different ways a client can choose to invest their liquid assets today. Clients can place deposits with BNY Mellon as an on-balance sheet investment, or they can invest in money market funds where BNY Mellon is the custodian. A client could also engage in a repo transaction with BNY Mellon as counterparty, or where BNY Mellon holds collateral for that transaction.
I’m constantly surprised by how many touchpoints we really have with our clients. We’re very proud of this position, but we’re also very humbled by it – that our clients trust us to protect and serve them in this way, and we take it seriously.
Q: What’s next?
A: In 2023, a lot of the work we’ve done has been validated. I feel as we go through the next phase of the rate cycle, we will continue to see that validation. We are entering a different rate environment and our client needs are going to be different.
We are starting to think about and anticipate a world where hopefully inflation settles. Clients are going to want to start to do different things. This year, clients are focused on the short end because rates have been moving so fast and they don’t want to lock their cash. But as we move forward, clients will start to have more appetite to diversify their investments.
Another area of focus is the interconnectedness between financing, collateral and liquidity. We continue to lean in on our collateral and our financing capabilities to bring them together. We’ll keep innovating and enhancing our various offerings to make it increasingly easier for clients to seamlessly navigate our platform.
