Retail banking — also called personal or consumer banking — serves individuals and households. It is the business most people picture: branches, current and savings accounts, mortgages, personal loans, and credit cards.

How it makes money: primarily net interest income — the spread between interest earned on mortgages and cards and interest paid on deposits — plus account and card fees. It is typically the largest single earnings contributor in a universal bank.

Commercial banking does what retail does, but for businesses — typically small and mid-sized companies. The product set widens to business loans, lines of credit, equipment and asset-based finance, cash management, and merchant services.

How it makes money: net interest income on business lending, plus fees for cash management, payments, and advisory. Deposit balances from operating accounts are a valuable, relatively stable funding source.

Corporate banking serves the largest clients — middle-market through multinational corporations, institutions, and governments. It is commercial banking scaled up and made more sophisticated: large syndicated loans, structured and cross-border finance, and integrated treasury services.

How it makes money: interest on large credit facilities, plus substantial fee income from arranging syndicated loans, payments, FX, and the cross-sell into investment-banking products.

Private banking serves high-net-worth and ultra-high-net-worth individuals and families, offering a highly personalised mix of banking, lending (often Lombard loans against a securities portfolio), investment management, and estate and tax planning.

How it makes money: a blend of management fees on assets, transaction commissions, and net interest on deposits and lending. It is prized because it is capital-light, fee-rich, and relationship-driven, with lower earnings volatility than trading.

These two related businesses manage money on behalf of clients. Wealth management advises individuals across the wealth spectrum on growing and protecting savings; asset management runs investment funds and mandates for institutions such as pension funds and insurers.

How it makes money: recurring fees on assets under management, plus performance fees and brokerage commissions. Because revenue scales with AuM rather than balance sheet, it is highly capital-efficient.

Investment banking (the advisory and capital-raising arm, often called IBD) helps corporations, institutions, and governments raise capital and execute strategic transactions. The two core franchises are:

• Advisory — mergers & acquisitions, restructuring, strategic advice
• Capital markets — underwriting new debt (DCM) and equity (ECM) issues and placing them with investors

How it makes money: almost entirely fees — a percentage of deal or issuance value. Unlike lending, classic advisory uses essentially no balance sheet and carries no credit risk, though revenue is lumpy and cyclical.

Global Markets — the sales & trading business — makes markets for institutional clients across asset classes, usually grouped as FICC (fixed income, currencies, commodities) and Equities. It provides liquidity, executes trades, and helps clients hedge risk.

How it makes money: bid-offer spreads on market-making, financing (including prime brokerage and repo), and gains on positions held. It also houses securities clearing and settlement and sell-side research.

Transaction banking — often branded Treasury & Trade Solutions or Payments — provides the operational financial plumbing that corporate and institutional clients use every day:

• Cash management — collections, payments, pooling, and liquidity concentration across currencies and countries
• Trade finance — letters of credit, guarantees, and supply-chain finance that enable cross-border trade
• Payments & FX — clearing and currency conversion at scale

How it makes money: high-volume transaction fees plus net interest on the large operating deposit balances it gathers. It is a transaction- and system-intensive source of relatively low-risk fee income.

Securities services (custody and asset servicing) safekeeps and administers the assets of institutional investors — asset managers, pension funds, insurers, and funds. The market leaders settle trillions of dollars of securities daily across a hundred-plus markets.

How it makes money: custody and administration fees (often basis points on assets under custody), plus ancillary revenue from securities lending, foreign exchange, fund accounting, and transfer agency.

Distinct from the services sold to clients, every bank has an internal Treasury (often the ALM or balance-sheet management function). It is not a client business — it is core to the bank’s model, managing the very asset the bank deals in: money.

What it does: manages liquidity and funding, runs interest-rate risk in the banking book (IRRBB), allocates capital, oversees the HQLA portfolio, and sets internal funds-transfer pricing (FTP) that charges each business for the liquidity and funding it uses.

Beyond the universal-bank lines, several specialised models appear across the industry:

• Merchant banking — provides capital for equity stakes rather than loans; effectively the bank’s private-equity arm
• Islamic banking — Shariah-compliant finance structured around profit-sharing and asset-backing rather than interest
• Digital / neobanks — branchless, technology-led retail and SME banking with a low cost base
• Restricted-licence & private banks — narrower charters (e.g. HK Category 2 institutions) focused on treasury, derivatives, or wealth, without a full retail deposit franchise

The universal-bank logic is diversification: spread income is stable but capital-hungry; fee income is capital-light but cyclical or competitive. A balanced mix smooths earnings across the cycle.

• A universal bank is a federation of businesses, earning through interest spread, fees, and trading
• Balance-sheet-led lines (retail, commercial, corporate, markets) consume liquidity and capital; fee-led lines (IB, wealth, transaction banking, custody) barely touch them
• Stable deposit-gathering businesses — retail and transaction banking — are the funding engine that Treasury prizes most
• The bank’s own Treasury sits beneath all of them, pricing and managing the liquidity, funding, and rate risk each business creates

• LCR ≥ 100% — enough High-Quality Liquid Assets (HQLA) to cover 30-day net stressed outflows
• NSFR ≥ 100% — Available Stable Funding must cover Required Stable Funding
• Internal stress tests — beyond regulatory minimums, banks run their own scenarios under the risk appetite framework

Regulators expect banks to remain above these thresholds at all times, with management buffers on top. In Hong Kong, the HKMA sets local implementation through the Banking (Liquidity) Rules and SPM module LM-2. Smaller institutions may instead report the simpler LMR and CFR.

High-Quality Liquid Assets are the assets a bank can convert into cash quickly and with little or no loss of value, even in a stressed market. They are the numerator of the LCR — the war chest a bank draws down when funding dries up.

To qualify, an asset must be fundamentally liquid: low credit and market risk, easy to value, listed on a recognised exchange, and traded in a deep, active market with reliable buyers even during stress. Crucially, it must also be unencumbered — not pledged as collateral or otherwise tied up.

Basel sorts HQLA into quality tiers, each with a regulatory haircut and composition limit:

• Level 1 — the highest quality: cash, central bank reserves, and high-grade sovereign debt. 0% haircut, no cap. Counts at full value.
• Level 2A — high-grade public-sector and corporate paper. 15% haircut.
• Level 2B — lower-grade corporate bonds and qualifying equities. 25–50% haircut.

Total Level 2 is capped at 40% of the HQLA stock, and Level 2B within that is capped at 15%. The caps stop banks from leaning too heavily on the lower-quality, more haircut-prone tiers.

A haircut is a regulatory discount applied to an asset’s market value to reflect the price you might actually realise if forced to sell or repo it under stress. The LCR uses the weighted (post-haircut) HQLA stock, not the gross market value.

A bank holds the following unencumbered assets:

• Central bank reserves & govt bonds (L1): USD 60bn × (1 − 0%) = 60.0bn
• Covered bonds, AA corporates (L2A): USD 20bn × (1 − 15%) = 17.0bn
• BBB corporates, qualifying equities (L2B): USD 8bn × (1 − 50%) = 4.0bn

A runoff is the share of a liability assumed to leave the bank during the stress window. The denominator of the LCR is built by applying a runoff factor to each funding type, reflecting how “flighty” that money is under stress.

• Stable retail deposits — insured, transactional: ~3–5% runoff
• Less stable retail — uninsured, high-balance, rate-chasing: ~10%+
• Operational corporate deposits — tied to clearing/custody: ~25%
• Non-operational & wholesale — large, mobile balances: 40–100%

The LCR denominator is total stressed outflows minus capped inflows:

Outflows are built bottom-up: each deposit and funding bucket × its runoff factor, plus contingent items — undrawn committed facilities, derivative margin calls, and rating-downgrade triggers. Inflows come from performing loans maturing in the window and reverse repo unwinds, each with its own inflow factor.

Regulatory runoff factors are a floor. Internally, banks calibrate their own — often more severe — assumptions, and the most credible anchor is observed behaviour in real crises.

• 1997–98 Asian Financial Crisis — currency-peg pressure, regional deposit flight, and the cross-border withdrawal of wholesale funding lines. The reference point for FX and regional-contagion stress in Asia.
• 2008 Global Financial Crisis — wholesale and interbank markets froze, securitisation shut, and committed facilities were drawn en masse. The reference point for market-wide funding stress.
• 2023 regional-bank runs — social-media-accelerated deposit flight; outflows far faster than the classic 30-day pace.

A bank’s internal liquidity stress test (the engine of the ILAAP) typically runs three scenario types:

• Idiosyncratic — a bank-specific shock: a rating downgrade or reputational event triggering deposit flight, while markets stay open
• Market-wide — a systemic freeze where wholesale funding is unavailable to everyone (the GFC template)
• Combined — both at once, usually the binding scenario for the risk appetite

For each, project cumulative net outflows day by day over the horizon and compare against the counterbalancing capacity (HQLA plus reliable contingent sources). The output is a survival horizon — the number of days the bank can withstand the stress before resources are exhausted.

Internal frameworks express resilience as the period the bank stays cash-positive under stress, not just a point-in-time ratio.

The ratios are the scoreboard; the Treasury desk plays the game daily. The job is to keep the bank funded at the lowest cost while holding enough buffer for a bad day. The core tools:

• Secured funding — repo and reverse repo
• Central bank reserves and standing facilities
• Intercompany funding within the group
• Deposits and wholesale funding as the structural base

The next slides walk through each — what it is, and how it moves the liquidity position.

A repurchase agreement (repo) is a sale of securities with a promise to buy them back later at a slightly higher price — effectively a secured loan, with the securities as collateral. The bank gets cash now and pays the repo rate.

A reverse repo is the mirror image: the bank lends cash and takes in securities as collateral, earning the repo rate. One desk’s repo is the counterparty’s reverse repo.

• Repo — raises cash quickly against HQLA without selling it outright; a primary tool for covering short-term gaps
• Reverse repo — deploys surplus cash at low risk and brings in HQLA-eligible collateral, supporting the buffer

Reserves held at the central bank are the most liquid asset that exists — settlement money itself. They count as Level 1 HQLA at a 0% haircut and are available instantly to settle obligations.

They serve three liquidity roles:

• Settlement buffer — meeting intraday and end-of-day payment obligations
• Top-tier HQLA — the cleanest possible numerator for the LCR
• Access to standing facilities — the central bank as lender of last resort, against eligible collateral

In a banking group, entities lend to and borrow from each other. Intercompany funding is cash a subsidiary or branch receives from its parent or affiliates; intercompany lending is cash placed the other way.

It is a powerful liquidity tool — surplus liquidity in one entity can fund a deficit in another — but it carries specific risks:

• Reliability under stress — group support may be assumed in good times but constrained when the whole group is stressed
• Ring-fencing — regulators increasingly require local entities to be self-sufficient and may restrict upstreaming
• Runoff treatment — intragroup wholesale funding can attract high runoff factors in the LCR unless genuinely committed

The structural funding base sits on a spectrum from sticky to flighty, and the mix directly drives the liquidity buffer a bank must hold:

Running an LCR at exactly 100% is a trap: a single bad week pushes the bank into breach, and breaches must be reported to supervisors. So banks layer buffers on top of the regulatory floor:

• Regulatory minimum — LCR / NSFR ≥ 100% (the hard floor)
• Management buffer — an internal cushion, e.g. operating target of 120–130%
• Risk appetite limit — the board-set level the bank commits to stay above

The gap between the operating level and the floor is the room the bank has to absorb stress before action becomes mandatory. Triggers carve that gap into graduated warning zones.

Early Warning Indicators (EWIs) are metrics monitored to catch liquidity stress before it shows up in the headline ratios. They are the smoke detectors — designed to fire early, while options are still cheap and plentiful.

• Internal — LCR trending toward limit, rising funding concentration, deposit outflow pace, declining HQLA, widening intraday peaks
• Market — the bank’s CDS spread widening, funding costs rising versus peers, rating-agency watch, share-price stress
• Behavioural — unusual large-depositor activity, drops in deposit roll-over rates

Management Action Triggers (MATs) are pre-defined threshold levels that, once breached, compel a specific, agreed response — removing hesitation and debate from the moment stress actually hits.

They are usually set as a tiered ladder:

• Green — normal operations, routine monitoring
• Amber — heightened monitoring, daily reporting to Treasury and the CRO, pre-positioning of contingent funding
• Red — invoke the Contingency Funding Plan: draw committed lines, repo the HQLA book, slow asset growth, escalate to the board and supervisor

Calibrating EWIs and MATs is itself an ALM discipline. A workable approach:

• Anchor to risk appetite — the red trigger should sit above the regulatory floor with enough room to act before breaching it
• Back-test against history — check where the triggers would have fired in the GFC, the Asian crisis, and 2023; would they have given useful lead time?
• Space the ladder — amber must give genuine warning ahead of red, not fire simultaneously
• Assign ownership and escalation — every trigger needs a named owner, a defined action, and a reporting line into ALCO
• Review regularly — recalibrate as the balance sheet, funding mix, and market conditions evolve

• HQLA is quality-tiered and haircut-adjusted — composition and encumbrance matter as much as size
• Runoffs turn the balance sheet into stressed outflows; calibrate them against real crises, not calm-market data
• Internal stress testing extends beyond the 30-day LCR to a survival horizon under idiosyncratic, market-wide, and combined scenarios
• Day-to-day, repo, reserves, intercompany, and the deposit/wholesale mix are the levers that keep the bank funded
• Buffers, EWIs and MATs convert the framework into pre-committed action before a breach occurs

CET1, Tier 1, and Total Capital minimums; buffers (capital conservation, countercyclical, G-SIB).

Basel III framework (BCBS189), HKMA Banking (Capital) Rules, SPM CA modules.

Retained earnings, RWA optimisation, intangible reclassification, DTA management.

The Basel IRRBB standard (2016) and the supervisory outlier test on EVE under six prescribed rate shocks.

BCBS d368, HKMA SPM IR-1, EBA IRRBB Guidelines, PRA Pillar 2 methodology.

See the interactive EVS Calculator tool for a live worked example.

Duration matching, receive-fixed swaps, repricing the asset book, NMD behavioural assumptions.

Transferring interest-rate and liquidity risk from the business lines to a central Treasury book, so each unit is measured on the margin it truly controls.

The FTP curve, matched-maturity pricing, and the liquidity premium add-on.

Pricing non-maturing deposits and prepayable assets through behavioural assumptions.