Brokers, custodians and regional banks could save between €30 - €70 million per annum with TARGET2-Securities (T2S), according to a new study by Clearsteam and Oliver Wyman.
The study, The T2S Opportunity – Unlocking the hidden benefits of TARGET2-Securities, shows firms could make the vast savings if action is taken to optimise securities and cash supply chains to take full advantage of the T2S model.
T2S is expected to produce significant macroeconomic benefits as a result of reducing costs for cross-border settlements.
The study produced quantitative case studies to show that banks could realise significant capital, funding and operating cost savings by delayering settlement-related exposures, pooling collateral for settlement and tri-party purposes, netting more cash settlements and simplifying operations.
Based on conservative assumptions, Oliver Wyman analysis estimates the savings potential in three high-level case studies; a broker-dealer with €100 billion trading assets and liabilities across major T2S markets could save up to €70 million; a global custodian with €400 billion in assets under custody across major T2S markets could save up to €50 million; and a regional bank with €140 billion in securities deposits across major T2S markets with a home market bias could save up to €30 million.
In addition to the cost efficiencies, a more consolidated T2S model can provide further benefits to banks, increasing stability and reliability of post-trade operations, reducing operational complexity and associated.
Philip Brown, head of global client relations and member of the executive board of Clearstream, said: “As a prerequisite for achieving the full T2S benefits, banks need to fundamentally rethink and change their current operating models in the post-trade area, particularly around settlements.”
“Given planning, budget and implementation cycles, banks need to take action now to realise these substantial benefits as soon as possible after T2S is fully implemented.”
“As T2S will impose adaption costs on market participants in any case, there is a window of opportunity to leverage change to achieve the full savings potential of consolidating assets.”
