Today, the corporate treasury’s role extends beyond the day-to-day to strategic management. As corporate treasury teams continue to do more with less, it’s crucial they operate efficiently, while meeting demands that reach across operations and into the boardroom. Dynamic market changes can exacerbate the challenges these teams face, increasing the need to think differently about liquidity management.
Banks can help by offering value-added services and technology solutions based on the corporation’s operating footprint, business activities and cash flows. The key is to automate core activities, simplify and quickly integrate, using the best available technology. At J.P. Morgan, we believe the best results are achieved when companies and banks work together to develop solutions.
COMPLEXITY AMID CONSTANT CHANGE
A convergence of regulatory drivers and market conditions is driving complexity. At the same time, new technology innovations are providing tools to meet these challenges head-on. Select a current change to learn more:
Regulatory impacts
Global regulations continue to reshape the banking industry and treasury management around the world. Driven by Basel III, banks’ funding and balance management practices have changed over several years. This, in turn, is changing how companies handle end-of-day deposits and intraday liquidity, which could impact the availability and cost of capital.
Dynamic market conditions
Currency volatility and evolving global interest rate environments illustrate the need for new ways to respond to emerging threats, while seizing opportunities. Manual FX management processes – especially when related to secondary currency positions - often impede understanding and mitigation of currency exposure risks. And, with a diverging global rates environment the challenge is to take advantage of rising rates, while minimizing the impact of negative rates across jurisdictions.
Fast-paced technology innovation
The accelerating pace of technology innovation introduces cost and complexities that may strain limited treasury resources. Treasury technology initiatives often face the added challenge of competing with other corporate technology initiatives for IT resources. It’s important to choose the right technology solution to enable treasury flexibility.
HOW BANKS CAN HELP WITH THIS COMPLEXITY
Amid these mounting pressures, banks can help optimize liquidity management and working capital. J.P. Morgan suggests three ways to accomplish this:
1. Develop a flexible infrastructure to enable agility
Treasury infrastructure must be flexible to facilitate cost-efficiency and effectiveness.
Simplify your bank account structure
A complex banking structure with multiple accounts around the globe adds complexity, fragments liquidity, impedes visibility and has inherent currency risk. New technology solutions will make it possible to manage your entire operation through centralized account structures – potentially from a single account . Additionally, designing a hierarchy of virtual or sub-ledger accounts could transform approaches to payments, collections, liquidity and currency risk.
Integrate banking solutions into your processes
Technology innovation can help treasurers automate processes. APIs are an emerging way to access information in real-time and on-demand while providing the flexibility and adaptability to create individualized solutions. Looking ahead, banks are pursuing blockchain / distributed ledger technology, which could minimize friction for global funds transfers helping clients achieve further liquidity optimization.
2. Deploy liquidity more effectively at the right time and place to mitigate risk
Treasurers generally operate on a global scale in an ever-expanding number of currencies. Today, solutions exist to automate funding, while managing currency exposure. Some of these solutions use a simplified centralized account to fund local currency payments with the precise amount of cash at the exact time needed. Solutions that keep exposures in primary functional currencies and only fund non-functional currency positions at the last moment can reduce currency depreciation risk, stranded cash in non-key currencies, and keep balances low to zero in non primary accounts that may have less oversight. An end-to-end automated solution supports gaining transparency around currency exposures as integral to managing cash, liquidity and risk.
3. Optimize cash by enhancing income and reducing expenses
Basel III and market conditions can exert pressure on overnight balance earnings. Banks, like J.P. Morgan, can help optimize potential returns by enabling core stable operating deposits to earn more while using investment alternatives, such as money market mutual funds, for non-operating balances.
In addition to income enhancement opportunities, expense reduction is crucial. Local earnings credit rate (ECR) has been around for decades. Now, there is a broader range of choices for how you can use ECR globally to potentially reduce expenses and improve financial performance.
REDEFINE TREASURY’S VISIBILITY AND ELEVATE ITS IMPACT
Technology solutions can enhance corporate treasury’s internal visibility and support its transformation from a transaction focus to a strategic one. J.P. Morgan continues to invest in new and innovative solutions ranging from API’s, machine learning, robotics and advanced data structures to transform the hindsight, insight and foresight that intelligent data brings to the market.
As a leader in providing treasury management services to large corporations and multinational companies around the globe, J.P. Morgan offers innovative treasury management solutions to help support your needs and objectives.
For more information, contact your J.P. Morgan Treasury Representative.
Contributors
Martijn Stoker
Liquidity and Escrow Product Head APAC
Meet Thakar
Liquidity Product APAC
