Shadow BankingPerspective from ALM Treasury

Stéphane DeniseGroup ALM Deputy Head

Tuesday 15th May 2012

What is Asset and Liability Management (ALM)

Asset and Liability Management is, with Treasury, the ‘bank within the bank’ for liquidity risk management

All liquidity demands and supplies from business lines are centralized to ALM Treasury through transfer mechanisms, including the cost of liquidity. Transfers are executed either analytically when within the same legal entity and with actual transactions when between different legal entity (branch, subsidiary…)

ALM Treasury is in charge of managing the liquidity risk of the Group that results from imbalances from internal (business lines’) demands and supplies which are subject to limits. This is done through actual funding transactions: secured / unsecured, public / private…

*The Clearing House: 2 November 2011

Agenda

3

1. A US retail bank perspective

2. A Group funding perspective

3. A few remarks on Shadow Banking

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Bank of the West Treasuryis located in Walnut Creek

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Walnut Creek

A US retail bank

*The Clearing House: 2 November 2011

Assets Liabilities

Investment Securities

Small Business Loans

Commercial Loans

Income Property Loans

Construction Loans

Real Estate Loans

Installment Loans

Other Loans

Leases

Reserve

Non Earning Assets

8.5

2.1

8.1

6.9

2.3

11.0

10.8

1.9

2.8

-0.5

9.4

Total 63.3

Demand Deposits

Checking

Savings

Money Market

CDs

Money Market Borrowings

FHLB Advances

Notes

Equity

9.2

2.3

1.8

8.0

7.5

6.3

10.0

0.2

8.8

Total63.3

Non Costing Liabilities0.7

Wholesale CDs8.5

US Agencies

Fannie Mae (3Q.11): mortgages = $2.9tn(http://www.fanniemae.com/ir/pdf/earnings/2011/q32011.pdf)

Freddie Mac (3Q.11): mortgages = $1.8tn(http://www.freddiemac.com/investors/er/pdf/10q_3q11.pdf)

Ginnie Mae (3Q.11): guaranteed securities = $1.6tn(http://www.sifma.org/research/statistics.aspx)

FHLB (3Q.11): advances + mortgages = $0.4tn(http://www.fhlb-of.com/ofweb_userWeb/resources/11Q3end.pdf)

This sums to $6.7tn

This represents 46% of US GDP ($14.6tn) and 50% of US Mortgages ($13.5tn) that are financed by US Agencies, explicitely or implicitely guaranteed by US Government (http://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm)

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Agenda

8

1. A US retail bank perspective

2. A Group funding perspective

3. A few remarks on Shadow Banking

Offer different investment instruments to fund the activities

The need for ‘one issuer’ in a Group and the conflict with diversification requirements from investors

Funding instruments diversification that could be qualified as ‘shadow banking’:

Securitization Covered Bonds Repos ABCP Conduits

Manage both the encumbrance and the cannibalisation issues

*The Clearing House: 2 November 2011

Agenda

10

1. A US retail bank perspective

2. A Group wide perspective

3. A few remarks on Shadow Banking

Shadow Banking helps solving issues

Demand for diversification

Demand for “low risk” assets

Should Central banks be considered shadow banks?

Address global macroeconomic imbalances

Pensions financing and ageing populations

Mark-to-market pro-cyclicity

*The Clearing House: 2 November 2011

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