Funding needs drive banks to “borrow” liquidity from insurers and pension funds

A need to secure cheaper forms of funding for the banking sector has prompted a large number of banks to approach insurers and pensions funds to "borrow" the liquidity held in their reserves of government bonds and other high-grade securities.

Several international insurance groups have confirmed privately to Life & Pension Risk that they have either completed, or are close to agreeing, a liquidity transfer deal with the banking sector. Various structures are possible, but the most common is