Treasury and Trade Solutions
8
Consolidating
more
transaction
activity at a
bank makes
balances more
likely to be
classified as
operating.
Next, as banks adjust to Basel and
other regulations, the value ascribed
to lines of business and client
relationships continues to evolve.
While most corporates are aware
that regulation has made operating
cash management business more
attractive to banks, it is worth
understanding the nuances. For
example, large banks generally
analyze client accounts using actual
operating activity and tenor profiles
to determine how much of a client’s
balances receive more attractive
regulatory liquidity treatment. Even
under full regulatory oversight and
disclosure, analytical methodologies
vary between banks. But, in general,
consolidating more transaction
activity at a bank makes balances
more likely to be classified as
operating. There is also a debate
around whether Basel makes
cash pooling structures a less
attractive offer for banks. While
Citi’s methodology means that
cash pools linked to operating cash
management structures remain both
attractive and a core client offer,
appetites vary between banks.
It is important for companies to
recognize that these results drive
how banks value client relationships
and should be incorporated into
bank relationship management
discussions and wallet allocation
decisions. Treasury teams will need
to continue to stay up to date as
other changes occur. For example,
other Basel rules are still being
implemented. Ring-fencing of
bank balance sheets by national
regulators (to favor local depositors
in case of a failure) impacts how
companies can utilize global liquidity
management services. And coming
money fund regulation in the U.S.
and Europe will drive changes
in short-term investment and
funding practices.
Additionally, the OECD Base Erosion
and Profit Shifting (BEPS) action
plan is taking firmer shape. The
objective of tax authorities is to
restrict transfer pricing mechanisms
being used to generate profits in
tax-favorable jurisdictions at the risk
of lower tax revenue in the country
of trade origin. The outcome of
BEPS is expected to impact many
commonly used corporate trading
models. This will have consequent
implications for treasury vehicles
(such as in-house banks) and
liquidity management structures.
Multinational treasury departments
should assess the implications and
get ready for changes.
Evolving role of the treasurer
Evolving commercial and market
realities are making many legacy
treasury practices sub-optimal.
Companies should continually
reassess opportunities for
refinement and extension of
treasury organizational structures
and processes to reduce carrying
costs and risks.
