Scottsdale, Ariz. In the ongoing quest to reduce liquidity requirements, Citibank’s Eureka Securitization Inc. has been re-tinkered to issue medium term notes (MTNs), the first of which will be sold by the end of the month, according to panelists speaking during the Arizona conferences.
Issuing MTNs, which allows Eureka to score a bit more liquidity relief, is a strategy that will be employed by other Salomon/Citibank conduits, and perhaps trend out to other administrators, a source at Salomon speculated.
Eureka broke ground back in 2000, when it was restructured to garner a lower bank liquidity requirement, dynamically priced depending on the receivables in the conduit. Citibank convinced the rating agencies that it could predict with a high degree of accuracy the payment tracking the receivables, which allowed it a fluctuating liquidity commitment. Eureka averages about 70% liquidity.
Banks are increasingly looking for ways to enhance and lower their required liquidity, in the face of new regulations, specifically the Basel Accord, which requires liquidity-providing banks to hold capital against their liquidity commitments.
“Some of the regulatory events we’ve seen have been a little scary,” said a panelist at a Strategic Research Institute session entitled The State of the Resilient ABCP Market. “The ABCP market is a pretty resilient market. Most banks already keep some kind of capital against their liquidity contracts.”
Said another panelist, “I think a lot of banks will be more prepared than we’re giving them credit for.”
