The liquidity you have is not the liquidity you can use
31 March 2026
Cyril Louchtchay de Fleurian, head of securities finance and balance sheet strategy at Capteo: Strategy & Management Consulting, provides an introduction to a new series which will explore a shift in the liquidity regime, its implications in terms of risk, and the resulting organisational and operational response
Image: stock.adobe.com/amixstudio
Core observation
Bank liquidity has become a multi-dimensional and increasingly geopolitical domain, now steered through repo, collateral, and market infrastructures.
Under this new regime, the risk lies in the loss of execution capacity over mechanisms that are now conditional, non-linear, and subject to political leverage. Once access becomes conditional, those who control the channels, eligibility rules, and points of entry, hold a point of control.
Yet some banks still manage this risk as a static balance sheet stock, whereas it has turned into an asymmetric power dynamic, where speed, eligibility, and intraday execution take precedence long before any formal signal appears. This organisational weakness turns liquidity into a self-inflicted strategic risk.
A structural break
We have entered a VUCA environment: Volatility, Uncertainty, Complexity, Ambiguity. Originating from the military sphere in the early 1990s (US Army War College), the concept aptly describes today’s liquidity dynamics: increasing complexity, multiplying interactions, abrupt and unprecedented dislocations, accelerating cycles. What 15 years of low rates and normalisation did not trigger, the current geopolitical sequence is now accelerating. In essence, a system-wide tightening of liquidity conditions — in a very literal sense — is reshaping the contours of secured financing markets, namely repo and collateral management.
Since the introduction of Basel prudential standards, bank liquidity has been framed as a stock: cash, liquid assets, ratios. It could be measured, reported, and relied upon. Repeated market shocks since 2019 have not challenged this framework; if anything, they have reinforced it through additional metrics, buffers, and stress tests. Yet this framework is no longer sufficient — not because liquidity is scarce, but because it can no longer be relied upon.
Contemporary liquidity is no longer a balance sheet state; it is a conditional execution capacity. It depends on repo, the high-quality liquid asset (HQLA) buffer, access to clearing houses, payment cut offs, and eligibility rules. It exists as long as access remains open. When access is restricted, delayed or impaired, liquidity does not disappear — it becomes effectively unusable.
Banks have remained compliant (SVB, Credit Suisse being the most emblematic) — and then lost control. Within less than 24 hours, HQLA became no longer usable as collateral in practice, margin calls forced collateral substitutions, roll-over rates collapsed, and deleveraging was triggered without any ability to intervene. The break occurred below the regulatory radar and played out in execution.
This is the core issue: the tipping point lies in repo. Control over repo determines access to leverage, central liquidity, and operational continuity. In stress, it is not balance sheets that fail first, but collateral chains, margining mechanisms, and settlement timelines. The failure is not accounting-based; it is a matter of timing before cut-offs.
This transformation elevates repo to the status of a critical financial infrastructure with sovereign implications, whose geopolitical dimension is not yet fully integrated into risk management frameworks.
Mechanism of power
Taken further: collateral eligibility criteria, haircuts, and access to trading platforms and triparty markets act as filters. In practice, they determine who can refinance, how fast, and at what cost — without any formal declaration. They have effects akin to targeted sanctions, yet without their visibility or political accountability.
In this context, speed becomes a weapon — the word is used deliberately. The decisive arbitrages take place intraday, sometimes within hours. Late decisions are indistinguishable from no decision at all. Liquidity flows to those able to act faster, not to those running the strongest ratios. The analogy with the Blitzkrieg campaigns in Poland and France in 1939-40 is instructive: rapid breakthrough, bypassing defences, victory before a coordinated response. This kinetic asymmetry creates a new vulnerability: solvent but slow institutions become exposed to discontinuities they are not equipped to handle.
Ultimately, liquidity continues to be managed as a prudential by-product of the balance sheet, rather than as a cross-functional variable. Responsibilities are fragmented across Treasury, asset liability management (ALM), risk, repo desk, and collateral management. Each optimises locally; no one arbitrates globally. In stress, decisions are taken reactively, under constraint, rather than as the result of deliberate control. Liquidity is endured rather than actively managed.
Loss of control
This organisational blind spot is compounded by a specific wrong-way risk: collateral tends to deteriorate precisely when the franchise is under pressure. This is not a bug. In practice, everything goes wrong at once — almost by design. Rising haircuts, exclusion of otherwise acceptable assets, and simultaneous contraction of funding channels create self-reinforcing spirals. Prudential frameworks struggle to capture this dynamic, as it does not manifest through immediate losses or ratio breaches. No regulatory framework effectively captures these weak signals.
The outcome is unequivocal: a silent discipline imposed by financial infrastructure itself. Certain activities become no longer viable not because they are prohibited, but because they cannot be refinanced in time. Strategic choices are constrained without explicit arbitration, mandate, accountability or recourse. Liquidity then acts as a Darwinian selection mechanism — invisible, yet unforgiving.
For many institutions, the primary risk is not a shortage of liquidity. It is the loss of control over executable liquidity. In a system where access, velocity, and coordination outweigh volume, inaction amounts to ceding control to the market and its infrastructures. For a systemic bank, this implicit delegation constitutes a first-order risk exposure.
The question of command
If this diagnosis holds, the issue is no longer whether a risk exists, but that it is neither explicitly owned nor actively managed. At this point, the discussion moves beyond tactical analysis into strategic governance. It calls for decisions.
In practical terms, the questions are straightforward — and are those an executive committee would put to its chief risk officer:
• Do we have a complete, executable, and tested view of our liquidity under real stress?
• Who, within our organisation, currently carries this risk without knowing it?
• Who would arbitrate under real stress, at 08:00?
• What is the hidden cost of our current model?
• Why do we accept that the repo desk is simultaneously client driven, P&L engine and judge?
• Which strategic decisions have we already renounced — not by choice, but due to liquidity constraints?
• Why has this topic not yet been structured as a dedicated control function?
As long as these questions remain unanswered, liquidity will continue to be endured as a coercive force, rather than managed as a strategic capability.
Bank liquidity has become a multi-dimensional and increasingly geopolitical domain, now steered through repo, collateral, and market infrastructures.
Under this new regime, the risk lies in the loss of execution capacity over mechanisms that are now conditional, non-linear, and subject to political leverage. Once access becomes conditional, those who control the channels, eligibility rules, and points of entry, hold a point of control.
Yet some banks still manage this risk as a static balance sheet stock, whereas it has turned into an asymmetric power dynamic, where speed, eligibility, and intraday execution take precedence long before any formal signal appears. This organisational weakness turns liquidity into a self-inflicted strategic risk.
A structural break
We have entered a VUCA environment: Volatility, Uncertainty, Complexity, Ambiguity. Originating from the military sphere in the early 1990s (US Army War College), the concept aptly describes today’s liquidity dynamics: increasing complexity, multiplying interactions, abrupt and unprecedented dislocations, accelerating cycles. What 15 years of low rates and normalisation did not trigger, the current geopolitical sequence is now accelerating. In essence, a system-wide tightening of liquidity conditions — in a very literal sense — is reshaping the contours of secured financing markets, namely repo and collateral management.
Since the introduction of Basel prudential standards, bank liquidity has been framed as a stock: cash, liquid assets, ratios. It could be measured, reported, and relied upon. Repeated market shocks since 2019 have not challenged this framework; if anything, they have reinforced it through additional metrics, buffers, and stress tests. Yet this framework is no longer sufficient — not because liquidity is scarce, but because it can no longer be relied upon.
Contemporary liquidity is no longer a balance sheet state; it is a conditional execution capacity. It depends on repo, the high-quality liquid asset (HQLA) buffer, access to clearing houses, payment cut offs, and eligibility rules. It exists as long as access remains open. When access is restricted, delayed or impaired, liquidity does not disappear — it becomes effectively unusable.
Banks have remained compliant (SVB, Credit Suisse being the most emblematic) — and then lost control. Within less than 24 hours, HQLA became no longer usable as collateral in practice, margin calls forced collateral substitutions, roll-over rates collapsed, and deleveraging was triggered without any ability to intervene. The break occurred below the regulatory radar and played out in execution.
This is the core issue: the tipping point lies in repo. Control over repo determines access to leverage, central liquidity, and operational continuity. In stress, it is not balance sheets that fail first, but collateral chains, margining mechanisms, and settlement timelines. The failure is not accounting-based; it is a matter of timing before cut-offs.
This transformation elevates repo to the status of a critical financial infrastructure with sovereign implications, whose geopolitical dimension is not yet fully integrated into risk management frameworks.
Mechanism of power
Taken further: collateral eligibility criteria, haircuts, and access to trading platforms and triparty markets act as filters. In practice, they determine who can refinance, how fast, and at what cost — without any formal declaration. They have effects akin to targeted sanctions, yet without their visibility or political accountability.
In this context, speed becomes a weapon — the word is used deliberately. The decisive arbitrages take place intraday, sometimes within hours. Late decisions are indistinguishable from no decision at all. Liquidity flows to those able to act faster, not to those running the strongest ratios. The analogy with the Blitzkrieg campaigns in Poland and France in 1939-40 is instructive: rapid breakthrough, bypassing defences, victory before a coordinated response. This kinetic asymmetry creates a new vulnerability: solvent but slow institutions become exposed to discontinuities they are not equipped to handle.
Ultimately, liquidity continues to be managed as a prudential by-product of the balance sheet, rather than as a cross-functional variable. Responsibilities are fragmented across Treasury, asset liability management (ALM), risk, repo desk, and collateral management. Each optimises locally; no one arbitrates globally. In stress, decisions are taken reactively, under constraint, rather than as the result of deliberate control. Liquidity is endured rather than actively managed.
Loss of control
This organisational blind spot is compounded by a specific wrong-way risk: collateral tends to deteriorate precisely when the franchise is under pressure. This is not a bug. In practice, everything goes wrong at once — almost by design. Rising haircuts, exclusion of otherwise acceptable assets, and simultaneous contraction of funding channels create self-reinforcing spirals. Prudential frameworks struggle to capture this dynamic, as it does not manifest through immediate losses or ratio breaches. No regulatory framework effectively captures these weak signals.
The outcome is unequivocal: a silent discipline imposed by financial infrastructure itself. Certain activities become no longer viable not because they are prohibited, but because they cannot be refinanced in time. Strategic choices are constrained without explicit arbitration, mandate, accountability or recourse. Liquidity then acts as a Darwinian selection mechanism — invisible, yet unforgiving.
For many institutions, the primary risk is not a shortage of liquidity. It is the loss of control over executable liquidity. In a system where access, velocity, and coordination outweigh volume, inaction amounts to ceding control to the market and its infrastructures. For a systemic bank, this implicit delegation constitutes a first-order risk exposure.
The question of command
If this diagnosis holds, the issue is no longer whether a risk exists, but that it is neither explicitly owned nor actively managed. At this point, the discussion moves beyond tactical analysis into strategic governance. It calls for decisions.
In practical terms, the questions are straightforward — and are those an executive committee would put to its chief risk officer:
• Do we have a complete, executable, and tested view of our liquidity under real stress?
• Who, within our organisation, currently carries this risk without knowing it?
• Who would arbitrate under real stress, at 08:00?
• What is the hidden cost of our current model?
• Why do we accept that the repo desk is simultaneously client driven, P&L engine and judge?
• Which strategic decisions have we already renounced — not by choice, but due to liquidity constraints?
• Why has this topic not yet been structured as a dedicated control function?
As long as these questions remain unanswered, liquidity will continue to be endured as a coercive force, rather than managed as a strategic capability.
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