A roundup of issues International Treasurer is investigating.
The bill introduced by Senate Banking Committee Chairman Chris Dodd this week has a lot to recommend it. It puts the so-called Volcker Rule, a sort of Glass-Steagal for prop trading, into effect, forces too-big-to-fail banks to devise their own living wills and creates a consumer financial products watchdog, albeit within the Federal Reserve. But it doesn’t take the ball very far upfield when it comes to an issue of crucial importance to many treasurers: the corporate exemption from clearing for derivatives.
Yes, Senator Dodd did say the current version of his bill, when it comes to derivatives at least, is more or less a placeholder. His Senate Banking colleagues are working on an amendment to slot in before the legislation is considered by the full committee. But that’s cold comfort to corporates who are distressed that higher margining costs, and the fact that standardized contracts will make it harder to secure hedge accounting treatment, will be coming down the pike if the current bill is passed in its current form.
Meanwhile, the issue of hedging currencies is on many treasurers’ minds, with volatilities persistently higher in many cross-rates than it was before the crisis. While few companies are eager to shell out a whole lot more in terms of their hedging option premium budgets, there are alternatives. One is to execute opportunistic call selling strategies, at least in the overnight tenor. If such a call is executed, the exposure is automatically hedged; if not, the premium income buttresses the hedging budget.