Amid the regulatory crackdown on bank balance sheets, cash has turned into trash. HFMWeek explores what hedge funds need to consider and what options they have for parking their excess balances
By Jasmin Leitner
While cash was once king, it is now considered “trash”, managers tell HFMWeek. The view is echoed by banks, and for good reason.
Regulations such as Basel III, and the equivalent US G-Sib rules, mean banks have to adhere to stricter liquidity coverage and leverage ratios, affecting their treatment of cash.
Deposits, which are considered reliable and likely to remain during a crisis, are classified as ‘operating’ and can be used by banks to fund their products and loans. Others, such as hedge funds’ excess cash, are classified as ‘short-term’ and ‘non-operating’, because they are subject to swift withdrawals in times of stress, requiring banks to hold additional capital to cover the perceived flight risk.
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