Project KLF

The objective of Project KLF is establish capital-based liquidity & collateral back-up insurance market for non-financial companies and financial institutions against future disruptions in the area of external financing/credit mechanism, i.e. sharp, sudden rises in financing costs without a fundamental explanation on company side.

The word’s largest insurance market, Lloyd’s of London, serves as a reference point for this design and developement. Its base structure, combined with 21st century technology/digital platform, form the framework for the open and decentralised KLF market.

Therefore, Project KLF is part of the digitalisation of the economy, any comparisons with existing insurance structures or the internalisation models of existing insurance companies are invariably wrong.

Non-financial companies can use the KLF insurance in two ways:

The term liquidity (Latin liquidus, ‘liquid’) is therefore defined as having the ability to quickly exchange one asset for another.

Project KLF was developed by M|E|W Consul as a reaction to crises including those experienced in 1997 (Asia), 1998 (Russia), 2001/02 (dotcom bubble burst), 2007/08 (financial market) and since 2010 (sovereign debts).

A credit squeeze can be defined in three ways:

Deutsche Bundesbank, Bank of England and other central banks, ratings agencies, the World Bank and IMF, OECD and private economic research institutions all share the view that a market constellation such as that experienced in the winter of 2008/09 could be repeated at any time, and non-financial companies should be prepared for this.

In their study of the financial crisis entitled ‘How Large was the Credit Crunch in the OECD?’, the CPB Netherlands Bureau for Economic Policy Analysis established that with liquidity insurance such as KLF it is likely that there would only have been a normal recession and, in a best case scenario, even only a growth slump.

In the future, KLF will guarantee ‘insured’ companies access to liquid assets in periods of market turbulences, which is covered by fully pre-funded capital pools - called KLF Lines - of institutional capital and for which companies pay a fee:

The capital pool’s higher yield helps investors with the aim of achieving regular and stable income, especially in a low interest rate environment; a future potential funding obligation for companies towards the occupational pension scheme is at least cushioned.

Rising costs of derivative transactions for hedging against interest rate, currency, commodity or other risks due to tighter regulatory requirements under EMIR - European Market Infrastructure Regulation and next MiFID II - Markets in Financial Instruments Directive II can also be mitigated.

The worldwide aim of the supervisory bodies is to transfer as many financial transactions as possible to transparent trading markets, and to settle these via central counterparties.

Going forward, the need to support all derivative transactions with adequate high-quality liquid assets as collateral should obviate negative feedback loops and government rescue plans.

For an independent qualification of the need for and advantages of liquidity insurance at both corporate and macroeconomic level, please see also the comprehensive studies listed under ‘Analysis’.

 

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