Amid continued economic and regulatory uncertainty, treasury has been a certainty.
A year ago global treasurers generally agreed that they had weathered the financial crisis – perhaps not perfectly, but fairly unscathed. There was no doubt that with the crisis, management concerns and risks were elevated, but opportunity levels for treasury were elevated, too.
The main opportunity during the crisis was that treasury’s skills were put the test and, having mostly passed with flying colors, executive management took notice of treasury issues. In most cases, treasurers were able to adopt and put to good use trusted best practices in liquidity, risk mitigation and bank relations, knowing that that the crisis was the time that they could elevate their importance to the company.
The rash of proposed regulations that followed the crisis, most notably the Dodd-Frank Act and the Basel III rules, have of course presented new challenges for corporations. And corporate treasuries, working alongside their financial institutions, are in the midst of the great “sort out” as they go through through Dodd-Frank and try to divine its ultimate impact on the world of treasury management.
The impact will be different for different parts of a corporation. For instance, a recent pre-meeting survey of the NeuGroup’s Global Cash & Banking Group (GCBG) revealed that most cash managers, about 67 percent of respondents, saw no direct impact of regulatory changes this year. The other 33 percent saw some impact, however, including having to deal with rules surrounding Report of Foreign Bank and Financial Accounts (FBAR) requirements and earnings credit decreases. As for expectations however, most expect some impact within the next two years. And one can be certain that the cost of hedging will rise.
But how it all will play out is still up in the air. And Congress continues to wrangle over major pieces of Dodd-Frank and even sections that have gone live are up again for a second look, i.e., debit card fee ceiling. There have also been recent proposals that would require more cost-benefit analysis while implementing the Dodd-Frank. This particular Republican-backed bill would basically allow for sidestepping new regulations if it was determined that costs of implementation exceeded the benefits.
While the crisis has highlighted the treasury’s position within corporate echelon, only some have received more budget money and resources. Indeed, the age of doing more with less is far from over; in fact it’s pretty much the way it will be from now on. But regardless, innovative treasury departments can further turn the crisis experience to their advantage.
Take, for instance, one treasury department at a major US MNC that had the foresight to prioritize and fix lapses and inconsistencies in credit assessments between its decentralized country offices. Separate credit lines for the same counterparties had over-exposed the company as a whole. But using data warehousing, the treasury department created a regional framework and built consolidated reporting which improved transparency of regional exposures. Also, a standardized risk assessment and mitigation process was established; the executive reports that followed could not have been timelier. This has left this company’s treasury prepared for issues like the one currently plaguing banks: the Basel Committee banking surcharge proposals.
Sound practices will have put corporate treasurers in a good position to meet the issues that could arise from those surcharges and other unknowns and ultimately help them when they go to negotiate for more resources.