Basel III pertains to tighter capital and liquidity requirements in banking regulations. At Safened, how did you structure and build the product concept and legal structure around Basel III initiative?
The financial crisis demonstrated that various forms of funding and liquidity were not all created equal, and the Basel III Liquidity Coverage Ratio (“LCR”) essentially put a value on the relative stability of different types of unsecured wholesale funding counterparties, with retail and corporate counterparties having more favorable LCRs than financial counterparties. What this means practically, is that deposits from retail or corporate investors are more efficient and offer more stability for large global banks subject to Basel III.
Dovetailing with Basel III, US Money Market Fund reforms were rolling out, and these changes impacted how corporate treasurers viewed prime money funds as a cash investment.
We saw an opportunity to use Safened’s platform and onboarding functionality to create an alternative to prime money funds that would offer corporate investors a safe, diversified deposit product (not subject to the reforms) and would provide banks with a new wholesale funding outlet that could be booked in the name of the corporate depositor (for favorable LCR treatment).
Did you initially pitch the idea to launch Safened’s US$ program or was this task given to you? What obstacles did you face along the way and how did you overcome them?
We always knew we wanted to tap the US market; but the development of the US$ program was quite organic and really came from listening to our clients. Safened had initially used its platform to develop an insured brokered deposit market in the EU and offer a new Euro funding product; however, as we met with large banks across the continent, we keep hearing that there was need for US$ --- and when all the big banks are telling you that, you listen!
My colleague and I had just done a round of meetings and we knew there was a real opportunity here as money fund reform was looming and US$ liquidity was getting tight. We sketched out a structure we thought might work, snapped a picture, and sent it over to our counsel for review.
Once we had a workable structure, we started pitching the platform to US broker-dealers who we thought would be good partners for distribution to their corporate clients, and we really piqued some interest… until our first structure didn’t work for our lead dealer.
Because of a gut feeling or something about the initial structure gnawing at me, I had thought through a few other options, and we ultimately were able to pivot and give the dealer confidence we would get to a structure that worked… and we did.
How did you find the pilot program’s broker dealer to start the new cash program?
Having worked in this space, more or less, for almost 20 years, I had a good sense of the players we would want to work with, and it was a matter of getting in front of them and offering them an interesting new product and revenue opportunity.
We had really done our homework and were able to articulate the value proposition in light of these various regulatory changes, and we were able to “speak the same language” as broker-dealer partner and offer them an innovation in a very mature market.
What have you learned since launching a program and would you have done anything different?
This whole process from inception to pilot was certainly a steep learning curve, but I think I can sum up the main lessons as the 3 P’s: patience, persistence, and pivoting.
I’ve learned a lot about the delicate balance between patience and persistence. Patience… not a virtue I naturally possess… is necessary when you are working with highly regulated partners who require a lot diligence and a lot of approvals. But you need to be persistent, without becoming a nuisance. I realize that this platform and product are my world, but for my partners, this is one of the many initiatives they are working on. So, it’s navigating that balance of pushing them to make progress and maintain momentum, but also recognizing some things will just take time.
Finally, working with a start up and a new product, there are so many unknowns and things you discover as you go. Because of this, you have to be able to think on your feet, adapt and pivot your strategy when necessary. I think that’s where I would’ve done things differently and pivoted more quickly in a few instances knowing what I know now.
Since pivoting from Head of US Market to Chief Commercial Officer, what have you learned about yourself in these roles?
I’m thrilled to have the opportunity to take on the role of Chief Commercial Officer at Safened and think about how we can take this platform to new markets and geographies and to new investor demographics. It’s really exciting to look at different dynamics globally, differences in regulatory regimes and investor behavior and see a world of opportunity.
I’ve learned that I really do love the world of deposits and liquidity products! It’s certainly not one of the sexier corners of the financial world, but when done right, I think we can create products that are a win-win-win -- for banks, for investors, and for the broker-dealers who want to offer innovative products and add value to cash as an asset class.
How have funding strategies and regulatory matters changed in light of the volatile market recently?
Whenever we have volatility, we see a flight to quality from investors, and we see banks looking to ensure they have ample funding to ride out any market disruptions. I think a lot of lessons were learned from the 2008 crisis, and banks have been much more thoughtful and prudent in how they’ve funded their balance sheets both to comply with Basel III and to prepare for moments like we are experiencing now.
I think moments like this remind market participants why innovative products and new diverse, funding outlets are so important. It’s volatile times like now that often spur new regulation, which can provide an opportunity for innovation if you can offer a real solution for these new challenges. We feel Safened’s US$ deposit program is tailor-made for times like this when investors are clamoring for safety and stability, and banks need access to the right kind of funding.
Reach out to Shana on LinkedIn.