The latest topics that International Treasurer is investigating.
Ultra-low interest rates in the US, the Eurozone and Japan have forced cash managers to take more risk in search of yield. This often means going further out on the yield curve, especially because most quality 12-month-and-under investments get snatched up by money market funds. Treasurers have to tread cautiously in this endeavor, though. Some may find their investments don’t conform to accountants’ definition of cash or cash equivalents. Also, higher-duration securities are more sensitive to inflation and there are signs that the ZIRP-fuelled commodity bubble could leak into the broader economy.
In fact, worries that inflationary pressures and global current account imbalances could cause the dollar to dive once again are being voiced by a growing number of treasurers. The Federal Open Market Committee’s decision to keep rates at rock bottom won’t help balance the international economic scales, although it is allowing banks to make huge profits by simply borrowing money from the government and then lending it back by purchasing Treasuries. That could come to a nasty end if inflation re-ignites.
But banks—or at least bankers—may have bigger reasons for concern. On December 17 the Basle Committee on Banking Supervision issued a consultation paper for new bank capital and liquidity rules. It proposes that banks be banned from granting bonuses if their capital levels fall below a certain level. It would also exclude hybrids from banks’ Tier One capital. If implemented—and the BIS’s timetable would see it phased in by 2012—it would provide a significant limit on bank leverage. That’s another reason treasurers might be wise to review and perhaps begin diversifying their bank groups now.