For corporates, the purpose of a bank-agnostic model is to deliver the benefits of centralized cash and liquidity management while addressing local operating requirements. Implied is a level of cross-bank standardization that supports simplification, rapid deployment and easy switching.
Yet treasury practitioners know that beyond the bank-agnostic pipe (the standardized connection to their banks around the world), not all bank capabilities are equal. Differing features, functionality and expertise can chip away at the bank-neutral ideal. A few examples include various bank offerings for multicurrency account services, payment cutoff times and pre-negotiated FX rates. With tactical and strategic execution closely intertwined, even small nuances in capabilities add complexity that diminishes treasury’s efficiency and effectiveness.
Still the benefits of a bank-agnostic model have outweighed the challenges—until now. New requirements for balances under Basel III and a new framework for intraday liquidity management affecting banks from the Basel Committee will emphasize the importance of differences in bank capabilities. Sub-par tools and services could exponentially increase the cost and complexity of managing liquidity.
Therefore, it is vital that corporate treasury:
These developments have broad implications for how corporate treasury manages IDL. The possible consequences of not managing IDL usage include:
Increasingly, companies have been focusing on the immediate implications of Basel III. Based on the new definition of operating cash, companies are revisiting their approaches to bank relationship management as credit banks ask for a greater share of operating services business and associated deposits. In some instances, banks are exiting the treasury services business in response to Basel III and intensifying profit margin pressure. And, given that a main driver of the bank-neutral model is to reduce concentration risk, new regulatory reporting requirements for banks—including capital adequacy metrics and stress test results—will increase counterparty risk transparency for companies. All of these trends increase the value of the easy switching afforded by a bank-agnostic approach.
Nonetheless, treasury practitioners must now also digest the implications that the likely reduction in available IDL and credit from banks will have on their cash management practices. Similar to Basel III, such dramatic changes will bring differing capabilities among banks into sharp relief. Treasury practitioners must understand these differences and adjust their strategies to avoid the very complexity, cost, inefficiency and new risks that a bank-agnostic pipe aims to avoid.
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