Advancing Market-Based Solutions for Liquidity and Deposit Stability in U.S. Banks BY JASON CAVE, Strategic Advisor, Regulatory Affairs, R&T Deposit Solutions INTRODUCTION: A CALL FOR DIVERSE CONTINGENCY FUNDING In her recent address to the ABA, Secretary of the Treasury Janet Yellen emphasized the need for the U.S. banking system to address vulnerabilities exposed by the liquidity stress events of 2023. She underscored two pivotal points: strengthening preparedness for liquidity stress and ensuring banks have diverse contingency funding sources. This mandate, while prudent, largely focused on conventional government-backed solutions that, although useful, may inadvertently crowd out viable private-sector alternatives. Complementing Yellen’s statements, Acting Comptroller of the Currency Michael Hsu recently proposed specific, stricter liquidity requirements aimed at managing the outflows of uninsured deposits, a key stressor observed during the 2023 banking challenges. Yet, both perspectives spotlight the discount window — a facility that, while a useful safety net, could limit the role of market-driven liquidity solutions. A more balanced approach, incorporating private market tools like reciprocal deposits, can better support banks’ preparedness while maintaining deposit diversity and stability. THE CASE FOR MARKET‑BASED SOLUTIONS AMID REGULATORY SHIFTS As liquidity risks evolve, the regulatory focus has increasingly turned toward federally insured mechanisms and contingency strategies. Secretary Yellen’s call for liquidity preparedness through “diverse sources of contingency funding” presents an opportunity to advocate for market-based tools alongside traditional backstops like the Fed discount window. In the current environment, the Utah Banker 12
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