What’s on International Treasurer’s radar screen this week.
This week’s editorial meeting yielded a variety of different topics. One of them concerned key takeaways from Phase II of The NeuGroup’s Global Cash and Banking Group’s (GCBG) World-Class Cash Management Principles project, which was conducted in conjunction with Citi. Founding editor and CEO, Joseph Neu, also participated in a Citi client roundtable, which resulted in some additional issues for International Treasurer to track.
World-class for current reality versus best practice
One of the chief takeaways from Phase II of the GCBG world-class initiative, which focused more on tactical day-to-day treasury operations, was the extent to which an ideal best practice state of play is impeded by the lack of standardized processes and systems tools in several areas. Among these:
- Bank account management, including systems. Most members seem to see themselves a long way from best practice in key areas. This is due to the level and variance of staffing requirements, as well as the lack of automation possible due to paper documentation requirements and the absence of two-way systems communications across banks to track and manage accounts, statements and billing. Electronic bank account management, or eBAM, while ready for use in many ways, has been slow to gain traction due to the disparate approaches being taken by banks and other solution providers. Those who are evaluating it generally believe they should see how it evolves further before incorporating it into their processes. In the meantime, in lieu of adequate technology, a world-class organization has a structured and disciplined approach to tracking and administering bank accounts and changes. This is best incorporated when the company banking resolution grants authority below executive level so as to not slow down processes by dragging executives into these very burdensome processes.
- Liquidity management. There has been a lot of discussion over the past few years about global visibility to cash, yet the group believed that 100 percent visibility is not necessarily world-class in that it may not be cost effective to pay for reporting services for accounts with limited or minimal activity and balances. On the matter of cash pooling, being world-class is denoted more by governance of the activity than actual execution. Many members have pooling activities executed at regional or local levels. However, a world-class company treasury tightly governs that activity centrally, if they don’t own the execution at HQ.
- Treasury’s role in accounting. Best practice suffers from divided responsibilities and functional ownership across accounting and reconciliation of treasury and operating accounts to statements and the GL. Best practice suggests that treasury focus its time on complex treasury accounting, e.g., in cash investments, FX and derivatives. But a hand in shaping policies and procedures will help in critical areas such as cash forecasting. Further takeaways and a distillation of some of the world-class principles will be coming later.
Economic growth, inflation and recovery. Another issue that came up, and was observed during the Citi client event, was how treasurers will be sorting through a relatively wide variety of inputs from banks and economists on regional GDP forecasts, inflation and the timing of rate changes for the short- and long-ends of the curve. Good news outlooks on several fronts are encouraging, but the risk is that treasurers could get burned if they get complacent. This might explain why so many economists seem to err on the side of being pessimistic, since clients tend to be less concerned if they are wrong in their forecasts, but the actual outcomes are positive.
Regulatory impacts.The impact of financial regulation on bank credit pricing and that of other bank services is also
going to be difficult to sort through. The expectation is that new regulations will lead to higher costs or less compelling offerings, such as when US banks start getting assessed on global deposits (versus just US) for FDIC insurance contributions, as they will starting Friday. As Citi commentators pointed out, this will make it more difficult for banks generally to offer higher rates on offshore accounts and further dampen their sweeps business. Many treasurers have already pulled back substantially on sweeps and prefer to keep funds in domestic accounts that maximize their earnings credit rate. Shifts to money market funds will also be dampened by ongoing effects of SEC and parallel IMMFA Code of Practice rule changes that make it more difficult for fund providers to offer extra yield. Even if they could, fund providers will also find ongoing supply constraints due to post-crisis regulatory and market reactions.
Tools to manage cash investments. Given the need for better liquidity management tools identified by the GCBG world-class project, we will also be investigating how these might be integrated with those for short-term cash investment, including money market portals. Citi, for example, made the case for its portal offering and the potential integration benefits that come from using a tool provided by a cash management bank that has a global footprint. We shall delve into these benefits further and weigh them against the benefits of non-bank and non-fund management company portals.