Liquidity Extraction
Treasury Strategy

Liquidity Extraction:
Why Cash-Rich Firms Are Targets

An analysis of deposit monetisation and bank repricing strategies in the post-ZIRP era.

SimplifyNumbers
STRATEGIC TREASURY • MAY 2026

Liquidity Extraction: Why Cash-Rich Firms Are Targets

An analysis of deposit monetisation and bank repricing strategies in the post-ZIRP era

Executive Summary

The era of "lazy cash" is over. For nearly a decade, corporate treasurers treated bank deposits as a risk-free parking spot. Today, banks view un-optimised corporate cash not as an asset, but as a regulatory liability unless it is actively generating fee income. Our analysis of 2024–2026 banking sector data reveals a structural shift: lenders are aggressively repricing "non-operational" deposits and tightening covenants to force liquidity extraction.

Primary Risk
Negative Carry
Banks are passing 100% of LCR costs to passive depositors via fees.
Strategic Shift
Fee-For-Yield
Access to yield is now gatekept behind cross-sell mandates.
Urgency
High
Repricing events are triggering covenant breaches in 15% of renewals.

Core Strategic Insight

The Inversion: Cash-rich firms are no longer "safe" borrowers to be courted, but "inefficient" balance sheet users to be monetised. If your cash isn't generating transaction fees, your bank is calculating how to exit the relationship or extract value through covenant-triggered repricing.

Diagnostic Analysis: The Mechanics of Extraction

The prevailing narrative in corporate finance is that high interest rates benefit cash-rich firms. While directionally true for net interest income, this view ignores the structural transformation within the banking sector. Banks are under immense pressure to optimise their Return on Tangible Common Equity (ROTCE), and "lazy" corporate deposits have become a drag on these metrics.

Interactive Model: The "Deposit Beta" Erosion
Simulator
5.5%
2.0%

Insight: The gap between Market and Your Rate is the bank's "Shadow Fee".

1. The Regulatory Penalty on "Non-Operational" Cash

The primary driver of this hostility is the Basel III Liquidity Coverage Ratio (LCR). Regulators distinguish sharply between "Operational Deposits" (cash needed for payroll, tax, and clearing) and "Non-Operational Deposits" (excess liquidity).

2. The "Share of Wallet" Ultimatum

To offset the regulatory cost of holding corporate cash, banks are enforcing strict "Relationship Profitability" thresholds. RMs are now compensated not just on loan volume, but on the velocity of client cash.

Exhibit 2 — The Client Profitability Matrix
Segmentation Analysis
Low Cash Balance High Cash Balance
THE GOLDEN GOOSE
High Fees / High Cash
Bank Strategy: Concierge Service. You are profitable.
THE BORROWER
High Fees / Low Cash
Bank Strategy: Extend Credit to Retain Fees.
THE FREELOADER
Low Fees / High Cash
TARGET. High LCR Cost, Low Revenue. Expect repricing.
THE GHOST
Low Fees / Low Cash
Bank Strategy: Ignore or Automate.

3. The Hidden Fee Architecture

Banks are engaging in "fee extraction" to reclaim interest expense via Sweep Fees, Covenant Waivers, and dormant Activity Charges.

Strategic Implications for Treasurers

1. The "Minimum Liquidity" Trap

We are seeing a resurgence of "Minimum Liquidity Covenants" in credit agreements. By mandating that a borrower maintains $X million in operating accounts with the lender, the bank guarantees a pool of low-cost funding that cannot flee to higher-yielding MMFs.

2. The Treasury Management System (TMS) Imperative

The only defence against liquidity extraction is visibility and mobility. Firms relying on bank-proprietary portals are captive. Those implementing independent TMS can multi-bank effectively.

Exhibit 3 — The Cross-Sell Trap
Mechanism
Step 1
Lazy Cash in Checking
Step 2
Bank Slashes Rate (Negative Carry)
Result
Client forced into Fee-Based Invest. Product

10-Step Roadmap: Optimizing Treasury Defence

Regional Lens

  • USA: Highest risk of "Liquidity Extraction" due to regional banking fragility. Banks are hoarding capital.
  • UK & Europe: Implementation of Basel 3.1 is stricter. "Operational deposit" definitions are being challenged.
  • Australia/NZ: Highly concentrated banking sectors reduce corporate bargaining power. Demand transparency on "Earnings Credit Rates."
© 2026 SimplifyNumbers. All rights reserved.
Sources & Citations:
• Federal Reserve Bank of Dallas (2023), Deposit Convexity....
• McKinsey (2024), How transaction banking is driving corporate deposits.
• Bank of England (2019), Corporate cash holdings.