The aforementioned methodology allows this approach to reuse the buffer information for liquidity pricing and together with the use of frequently updated liquidity spreads offers a highly adaptive system to transfer-price liquidity. This helps to align incentives within the bank to treat liquidity as a scarce resource that must be used sensibly, particularly when it comes to managing incentives for new and potentially high liquidity consuming businesses.
This brings us to the “pièce de resistance”: managing profitability. Even with vast amounts of liquidity, banks still cannot sustain their business if it is lacking adequate profitability.