ICD Intelligencer: BANKING ON BASEL III · ICD Intelligencer: BANKING ON BASEL III. 3 From fewer...
Transcript of ICD Intelligencer: BANKING ON BASEL III · ICD Intelligencer: BANKING ON BASEL III. 3 From fewer...
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Executive Summary Basel III is a global, voluntary regulatory standard on bank
capital adequacy, stress testing and market liquidity risk.
It is the most complete overhaul of U.S. and international
bank capital standards in over two decades. The Basel III
framework significantly changes bank rules in 46 countries
including all G-20 members. While there are differing
sovereign approaches in adopting these new regulations,
Basel III is an enormous and complex initiative, that is
itself a work in progress, where final rules are likely to be
amended and subject to further calibration.
NEW BASEL III RULES
Basel III’s new liquidity standards specified in the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) aim to limit over-reliance on short-term wholesale funding.
Basel III Rules include:
• Liquidity Coverage Ratio (LCR) – Beginning on January 1, 2015 • Net Stable Funding Ratio (NSFR) – Phased in through January 1, 2019 • Quality of Capital – Ineligible capital phased out by 2018• Quantity of Capital – 3 new types of capital requirements – January 1, 2019• Higher Minimum Tier 1 Capital Requirement – January 1, 2015• Capital Conservation Buffer – Current• Countercyclical Capital Buffer – Current• Higher Minimum Tier 1 Common Equity Requirement – January 1, 2015• Leverage Ratio – phased through January 1, 2018• Minimum Total Capital Ratio – Currently 8%
Basel III regulations will dis-incentivize non-operational bank deposits and may reduce investment supply.
For corporations, the principal effects include:
• The necessity to strengthen bank relationships for operational deposits• Further diversification of investment products • Heightened, increased risk management requirements for expanded
portfolio
As yields begin to rise, corporations will look to optimize return within their risk and liquidity parameters.
Banks may be likely to steer customers and their funds away from deposits to non-balance-sheet products such as money market accounts or short duration bond funds and other products with greater yield but less liquidity. Companies need to rethink how they invest surplus cash to obtain acceptable yields, while maintaining the liquidity and level of security they require.
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From fewer repos to lower inventories of bonds, financial institutions are responding to more stringent capital standards enacted by regulators.
Potential Repo Market consequences:
• Higher borrowing costs for governments and companies
• Declines in liquidity in times of market stress
• Wider gaps between bid and offer prices
• Reduced speed of completing trades
Corporate treasury must widen their asset allocation of investment portfolios.
Corporates must seek a greater portfolio diversification of counterparties, countries and prod-ucts. With banks dis-incentivized to hold non-operating deposits, a lower supply of repo and bonds, treasury departments must also look for alternative longer-term investments and expand liquidity planning.
Corporate portfolios will be diversified with multiple investments within several investment product categories, including:
• Alternate Investment Products
• Uninsured Bank Deposits
• FDIC Brokered CDs
• Treasury Institutional MMFs
• Government Institutional MMFs
• Prime AAA Institutional MMFs
• General Purpose Prime Institutional MMFs
• Government Ultra Short Bond Funds
• Prime Ultra Short Bond Funds
• Government Separately Managed Accounts
• Prime Separately Managed Accounts
• Direct Investments
Increased need for secure and efficient trading, reporting and analytics that details a portfolio’s aggregated exposure to counterparties.
With expanded portfolios, corporations will need to find ways to trade and analyze exposures as securely and efficiently as possible.
Continued importance will be placed on evaluating the relative financial strength of counterparties and ensuring that portfolios comply with investment guidelines.
It’s not enough to understand the portfolio counterparties – corporations must have efficient ways to evaluate the relevant financial strength of counterparties. This becomes more important with expanded portfolios.
The good news is that the fundamentals that anchor corporate treasury remain the same. The core objectives of preservation of capital, liquidity and yield through diversification, analytics, compliance, optimization and archiving are unchanged even as the rules and regulations evolve around them.
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1 LEVER:BASEL II C A P I TA L
BASEL III C A P I TA L L I Q U I D I T Y L E V E R A G E3 LEVERS:
Capital Adequacy
Net Stable Funding Ratio (NSFR)Liquidity Coverage Ratio (LCR)
Leverage Ratio
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1 2 3
The Basel provisions are internationally agreed standards that are not legally binding. Countries adopt the Basel standards through national legislation.
Basel III strengthens capital adequacy in all three components (capital resources, risk weighted assets and capital ratios)
Basel III introduces a regime that promotes both short-term and long-term resiliency to liquidity shocks
Basel III introduces a regime that constrains leverage in the banking sector and mitigates model risk through non-risk based measures
C A P I TA L
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LIQUIDITY
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LEVERAGE
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LIQUIDITY ASSETS ≥ 100%30 DAY NET CASH OUTFLOW
AVAILABLE STABLE FUNDING ≥ 100%REQUIRED STABLE FUNDING
CAPITAL RESOURCES ≥ CAPITAL RATIORISK WEIGHTED ASSETS
TIER 1 CAPITAL ≥ 3%EXPOSURE
TIER 1: Tier 1 capital is consistent with the measure used for capital adequacy
EXPOSURE: Exposure is determined on a non-risk basis, generally following the accounting measure. Comes into force on January 1, 2018 following parallel runs from January 1, 2013
LIQUID ASSETS: Stock of high quality liquid assets in stressed conditions; must be unencumbered and ideally central bank eligible
NET CASH OUTFLOW: Net cash outflow over a 30 calendar day period under a prescribed stress scenario
Comes into force on January 1, 2015; observation period started January 1, 2011
CAPITAL RESOURCES: Increase to common equity Tier 1 (CET1) and total Tier 1 capital ratios including new capital conservation and countercyclical capital buffers. CET1 capital ratio increases from 2% to 7% (including the capital conservation buffer)
Phased in from January 1, 2013 to January 1, 2019
RISK WEIGHTED ASSETS: More robust standards and criteria to determine eligibility of instruments as capital. Deductions and prudential filters such as financial investments and minority interests become more onerous.
Came into force on January 1, 2013 with some transitionals out to January 1, 2019
CAPITAL RATIO: Strengthening of counterparty credit risk capital including the introduction of a new credit valuation adjustment (CVA) capital charge, use of stressed inputs into model calculations, changes to the capital treatment of collateral and higher capital for exposures to central counterparties.
Came into force on January 1, 2013
AVAILABLE FUNDING: Equity and liability funding expected to be reliable sources of funds over a one year time horizon
REQUIRED FUNDING: Assets and exposures requiring stable funding over a one year time horizon
Comes into force on January 1, 2018; observation period started January 1, 2011
ICD Intelligencer:
BASEL IIIAT-A-GLANCE
Source: Basel Committee On Banking Supervision
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Table of Contents
Introduction
Banking on Basel III
Basel III - Operational Versus Non-Operating Deposits
Basel III - New Liquidity Standards
Basel III - Increase in the Cost of Capital
Basel III - Global Systemic Important Banks (G-SIB)
Basel III - Additional Basel III Standards
Banks Struggle Toward Stability
Alternative Investment Products
Be Prepared
Coda
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14
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Introduction We are witnessing an historic era of change in banking and corporate treasury.
The U.S. Basel III final rule was approved in July 2013 by
three U.S. banking regulators: The Federal Reserve; The
Office of the Comptroller of the Currency (OCC); and the
Federal Deposit Insurance Corporation (FDIC). It is the
most complete overhaul of U.S. bank capital standards in
over two decades.
The U.S. Basel III final rule applies to the entire U.S. banking
sector, from community banks to regional banks to the larg-
est and most global U.S. banking organizations. The final rule
also applies to U.S. bank subsidiaries and U.S. bank holding
company subsidiaries of foreign banks.
This ICD Intelligencer provides a brief summary of the key
and pertinent regulatory rules (the U.S. Basel III capital rule
is more than 970 pages) that will impact corporate treasury
practices, investment product selection and guide the tech-
nological implementation necessary to function in this new
environment.
ICD Intelligencer:
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BASEL II
PILLAR IMinimumCapital
Requirements
PILLAR IISupervisory
ReviewProcess
PILLAR IIIDisclosure &
MarketDiscipline
BASEL III
PILLAR IEnhancedMinimumCapital
& LiquidityRequirements
PILLAR IIEnhanced
SupervisoryReview Processfor Firm-wide
Risk Managementand CapitalPlanning
PILLAR IIIEnhanced RiskDisclosure &
MarketDiscipline
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The Intelligencer has drawn exposition, commentary and
expert analysis from the thought leaders in our industry who
greatly help in providing clarity on Basel III’s complex set of
changes and their implications. We thank them for their ex-
pertise and insight. It is important to understand that these
rules, even ones identified final, are still a work in progress
and are subject to observation, revision and amendment.
It is also important to note that countries will deploy Basel III
at their own pace and different treatments will emerge
from country to country in the near term. Domestic liquidity
regimes are still in place (e.g. The UK still adheres to the FCA
ILAA regime) and it is not yet clear to what extent domestic
regulators will allow Basel III to replace these regimes entire-
ly or whether they will run concurrently for a period of time.
The U.S. and E.U. rules implementing Basel III follow many
aspects of Basel III closely, but there are major differences
in approach in several key areas – such as treatment of cap-
ital instruments, risk weight calculation and the leverage
ratio. There are also differences in the gradual “phase in” of
certain rules – the detail of these are beyond the scope of
this publication. Basel III is a global endeavor and The Basel
III framework incorporates the G-20 (including Russia and
China) and the 28 member states of the E.U. that brings the
total participating countries to 46.
Of great relevance to practitioners is that treasury tech-
nologies have made significant advances over the past six
years and are already providing efficiency, automation,
intelligence and greater security for next-generation trea-
sury departments. In consideration of the challenges that
Basel III, SEC reform and economic policy have created for
corporations, treasurers are strongly encouraged to adopt
new technologies and integrate these powerful treasury
applications with their ERP, TMS and banking systems.
Now for a closer look at Basel III.
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THE BASEL III WORLDThe Basel Committee Members:
ArgentinaAustraliaBelgiumBrazilCanadaChinaCroatiaFranceGermanyHong Kong SARIndiaIndonesiaItalyJapanKoreaLuxembourgMexicoNetherlandsRussiaSaudi ArabiaSingaporeSouth AfricaSpainSwedenSwitzerlandTurkeyUnited KingdomUnited States
Additional EU Member States:
AustriaBulgariaCyprusCzech RepublicDenmarkEstoniaFinlandGreeceHungaryIrelandLatviaLithuaniaMaltaPolandPortugalRomaniaSlovakiaSlovenia
Present Chairman of the CommitteeMr. Stefan IngvesGovernor of Sveriges RiksbankSweden’s central bank
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Banking On Basel IIIThe Basel Committee of the Bank for International Settle-
ments has introduced sweeping new rules known as Basel III
(or the Third Basel Accord) that amend the existing standards
of Basel I and Basel II. New Basel III rules are now making
their way through the financial institutions as banking sys-
tems prepare to implement several of the key rules, such
as the Liquidity Coverage Ratio (LCR), beginning on January
1, 2015. Other rules such as the Net Stable Funding Ratio
(NSFR) will be phased more gradually through January 1,
2019 when total Basel III implementation is expected to be
in place. Basel III is already beginning to create an impact
on bank capital, liquidity, and leverage requirements.
The wide-ranging outline of the Basel III framework was
agreed in 2009 by the Basel Committee’s oversight body
and was further developed over the course of 2010. In
December 2010 the Basel Committee issued two publica-
tions containing a near final version of its new rules and
followed in January 2011 with the final elements of reform
to the redefinition of regulatory capital. (The word “final”
used here is a somewhat loose term that speaks to con-
ceptual and structural implementations that are subject
to observation periods and revision – hence descriptions
such as “interim final rules”, etc.)
The three publications, collectively known as Basel III,
significantly change the capital, liquidity and leverage
rules for international banks. The causal sequence of
Basel III is already beginning to transform bank behavior
and it is beginning to impact treasury practitioners as this
global banking regulatory framework imposes challenging
new corporate treasury complexities on corporate cash
flow, deposit and loan interest rates.
The response from the banks is likely to be multi-pronged.
There will be pricing changes to reflect higher liquidity
carry-costs, especially for non-operational fixed income
balances, but also we will see banks develop more regu-
latory efficient products (e.g. 35-day Notice account) to
“Although some of the fine points of Basel III are still being worked out, the broad princi-ples have been settled. And while there’s no global enforcement body – each country has the sovereign ability to determine how the rules apply to its banks – there will be strong pressure to make enforcement homogenous. Bank regulators certainly don’t want to see arbitrage across political jurisdictions.”
– Treasury Strategies, Basel III - Changing The Rules Of The Game For
Corporate Treasurers,May 7, 2014
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take balances outside the reach of the LCR. The operational
deposit definition will also see the development of ap-
propriate product attributes to mitigate the LCR impact
for clients and banks alike. This will require clients to
get back into the discipline of proper cash planning and
structuring of cash portfolios. MMFs should get a boost as
an alternative home for non-operational balances.
But this prognosis is speculative and the medicine that
banking regulators are prescribing is potent. For banks,
Basel III’s principal effects are increased capital reserves,
improved liquidity and restricted leverage. For corporations,
the principal effects will be a need to strengthen bank
relationships for operational deposits, further diversification
of investment products and heightened risk management
of their expanded portfolio.
ICD Intelligencer:
BANKINGON BASEL III
Basel III Capital & Liquidity Rules Implementation Timeline
“For corporate treasurers, the stakes are very high. Commercial banks, for many, are the primary sources of credit; that will change for some firms. Commercial banks are the primary repositories of corporate cash, and that will also change for some firms. Com-mercial banks are the primary providers of transaction and payment services. That too will undergo disruption.”
– Treasury Strategies, Basel III - Changing The Rules Of The Game For
Corporate Treasurers,May 7, 2014
Basel III: Capitaland Liquidity 2011 2012 2013 2014 2015 2016 2017 2018 2019
4.5% 5.5% 6.0% 6.0% 6.0% 6.0% 6.0%
4.5% 5.5% 6.0% 6.625% 7.25% 7.875% 8.5%
8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
8.0% 8.0% 8.0% 8.625% 9.25% 9.875%
Migrationto Pillar 1
10.5%
Minimum tier 1capital
Minimum tier 1capital + capitalconservation buffer
Minimum totalcapital
Minimum totalcapital +connservation buffer
Capitalinstruments thatno longer qualify
Internationalleverage ratio
Net stablefunding ratio
Liquidity coverage ratio
Phased out over 10 year horizon beginning in 2013
Parallel run (disclosure starts 2015)Supervisory Monitoring
Minimum Standard
Observation Period
Observation Period
Minimum Standard
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Basel III - Operating Versus Non-Operating DepositsPerhaps the most direct way that corporate treasury
departments will have to adjust to Basel III is in the new
definitions of corporate operating and non-operating de-
posits. Banks will disincentivize corporations from making
non-operating deposits. Corporations will therefore need
to develop a deeper strategic operating relationship with
banks and find a new home for non-operating deposits.
“Corporate treasurers have historically valued banks for
the liquidity they can provide. Soon, banks will value cor-
porate treasuries for the kind of liquidity they can provide.
Treasuries have historically, looked to banks for stability,
places they can move money into or out of at a moment’s
notice. Soon, banks will look at corporations according
to how much they add to or take away from the bank’s
stability.
From the bank’s perspective, companies that consume
stabilizing products and services, and that provide stabi-
lizing deposits, will be more highly sought after. Those
with destabilizing products, services and balances will
almost surely pay a higher price – if they are banked at
all. The type of deposit a bank used to covet may now be
an unwelcome burden. One can imagine many cases in
which a bank would no longer accept volatile deposits
such as daily sweeps into investment vehicles.” - Treasury
Strategies, Changing The Rules Of The Game For Corporate
Treasurers, May 7, 2014
ICD Intelligencer:
BANKINGON BASEL III
Operating Deposit Definition
Operating Deposit refers to unsecured whole-sale funding that is required for the banking organization to provide operational services as an independent third-party intermediary to the wholesale customer or counterparty providing the unsecured wholesale funding.
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The Basel III “operational deposits versus non-operational
deposits” definition has not been finalized, however Davis/
Polk has provided a thorough working description of the
current definition.
OPERATIONAL SERVICES
• Payroll remittance
• Payroll administration and control over the distribution of funds
• Transmission, reconciliation, and confirmation of payment orders
• Daylight overdraft
• Determination of intra-day and final settlement positions
• Settlement of securities transactions
• Transfer of recurring contractual payments
• Client subscriptions and redemptions
• Scheduled distribution of client funds
• Escrow, funds transfer, stock transfer and agency services, including payment and settlement services, payment of fees, taxes and other expenses
• Collection and aggregation of funds
(source: Davis/Polk)
ICD Intelligencer:
BANKINGON BASEL III
“If you have a deep, broad treasury manage-ment relationship with a specific client, then the majority of those balances stand a good chance of being deemed operating. If your relationship is just holding deposits, those balances are more likely to be defined as non-operating.”
– Elizabeth MinickHead of U.S. Corporate Treasury Sales
for Bank of America Merrill LynchGlobal Transaction Services
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ICD Intelligencer:
BANKINGON BASEL III
OPERATIONAL DEPOSITS RECOGNITION REQUIREMENTS
In order to recognize a deposit as an operating deposit, a
banking organization must comply with all of the following
requirements:
• The Deposit must be held pursuant to a legally binding written agreement, the termination of which is subject to a minimum 30-day notice period or significant ter-mination costs are borne by the customer providing the deposit of a majority of the deposit balance is with-drawn from the operational deposit prior to the end of the 30-day notice period.
• There must not be significant volatility in the average balance of the deposit.
• The deposit must be held in an account designated as an operational deposit.
• The customer must hold the deposit at the banking or-ganization for the primary purpose of obtaining the op-erational services provided by the banking organization.
• The deposit account must not be designed to create an economic incentive for the customer to maintain excess funds therein through increased revenue, re-duction in fees, or other economic incentives.
• The banking organization must demonstrate that the deposit is empirically linked to the operational services and that it has a methodology for identifying any excess amount, which must be excluded from the operational deposit amount
• The deposit must not provided in connection with the banking organization’s provision of operational services to an investment company, investment advisor, or a non-regulated fund
• The deposit must not be for correspondent banking ar-rangements pursuant to which the banking organization (as correspondent) holds deposits owned by another depository institution (as respondent) and the respondent temporarily place excess funds in an overnight deposit with the banking organization
(source: Davis/Polk)
The U.S. banking agencies stated that they intend to closely monitor classification of operational deposits by banking organiza-tions to ensure that the deposit meet these requirements.
– Davis Polk
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ICD Intelligencer:
BANKINGON BASEL III
As corporate treasury relationships involving non-operating
cash deposits become less attractive for banks going forward,
banks may be likely to steer customers and their funds away
from deposits, which reside on the bank’s balance sheet, to
non-balance-sheet products such as money market accounts
or short duration bond funds and other products with greater
yield but less liquidity.
“Companies will need to rethink how they invest surplus cash
to obtain acceptable yields, while maintaining the liquidity
and level of security they require. Additionally, companies
must make sure their cash flow management and forecasting
moves cash through the company efficiently and predictably
in order to facilitate efficient use of surplus cash.
The link between Basel III and companies’ cash flow manage-
ment is not immediately obvious to many corporate treasur-
ers. It is widely appreciated that Basel III is one of the most im-
portant regulatory changes to have emerged in recent years
as governments, central banks and regulators work to bring
greater stability to the global financial system.
However, the general perception is that the impact of the
regulation’s principal measures — increased capital reserves,
improved liquidity and restricted leverage — will be isolat-
ed to the banking sector. In reality, the impact of many Basel
III measures are already being felt by companies as banks
change their operational behavior in advance of the start of
implementation in January 2015.
Yields on bank demand deposits for investment cash — which
are historically low because of low interest rates — are set to
remain that way to offset the associated loss of liquidity val-
ue for banks. Alternatively, companies seeking an acceptable
return can explore a range of term and investment products.”
– Peter Fox Head of U.S. Liquidity Product Management, Bank
of America Merrill Lynch
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Basel III - New Liquidity Standards“More than five years after the financial crisis, reforms
designed to make the financial system safer are filtering
down to the world of corporate treasury. Basel III capital
standards are starting to affect companies’ relationships with
their banks, while the prospect of changes in the regulations
governing money-market funds has created uncertainty
around short-term investing.”
“[Anthony Carfang, a partner at consultancy Treasury
Strategies] pointed out that as national regulations imple-
menting the Basel III standards are phased in beginning
next year, two parts of the standards will have particular
relevance for treasuries: the leverage ratio and the liquidity
coverage ratio.
The leverage ratio limits how big a bank’s balance sheet
can be, which means banks may have less interest in mak-
ing loans. That’s why a treasurer’s got to make sure that the
company’s borrowing resources are diversified and they’re
not simply reliant on banks for short- and intermediate-term
funding. The leverage ratio probably also increases the
cost of borrowing, but slightly.” – Susan Kelly, Treasury &
Risk Magazine, Basel III Reshapes Banks’ Relationships
With Corporate Treasury – May 21, 2014
Basel III’s new liquidity standards encapsulated in the
Liquidity Coverage Ratio (LCR) and the Net Stable Fund-
ing Ratio (NSFR) aim to limit over-reliance on short-term
wholesale funding. However, much ambiguity remains in
their definitions.
“The Liquidity Coverage Ratio – an essential component of the Basel III reforms – has since been revised, most recently in January 2014. This simple, non-risk based “backstop” measure will restrict the build-up of exces-sive leverage in the banking sector. Basel III’s leverage ratio is defined as the “capital measure” (the numerator) divided by the “exposure measure” (the denominator) and is expressed as a percentage. The capital measure is currently defined as Tier 1 capital and the minimum leverage ratio is 3%. The fi-nal calibration, and any further adjustments to the definition, will be completed by 2017, with a view to migrating to a Basel III Pillar 1 (minimum capital requirement) treatment on 1 January 2018.”
– BetterRegulation.com
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1. The Liquidity Coverage Ratio (LCR) is designed to help
determine whether banks have enough high-quality liquid
assets to protect themselves in a stress scenario from a
30-day deposit run-off. The Liquidity Coverage Ratio or
LCR will begin in 2015.
Liquidity Coverage Ratio (LCR) =
2. The Net Stable Funding Ratio (NSFR) is designed to
achieve a similar objective of the LCR over a one-year
horizon, and is scheduled to go into effect January 1, 2018.
The Net Stable Funding Ratio complements the LCR and
is designed to promote prudent funding structures by
banks, with a particular focus on preventing over-reliance
on short-term wholesale funding. It specifically excludes
short-term wholesale funding.
The NSFR is intended to influence structural liquidity pro-
files. Global supervisors are currently working on a revised
version. The final ratio for the NSFR will be released some-
time in 2014. The net stable funding ratio has received rel-
atively little attention due to its seemingly distant imple-
mentation date of January 1, 2018. However, its impact will
be immediate and significant for many banking institutions
and corporate treasury departments.
The NSFR measures long-term assets that are funded by
long-term, stable funding including customer deposits,
long-term wholesale funding and equity. The NSFR is de-
fined as – the amount of Available Stable Funding (ASF)
relative to the amount of Required Stable Funding (RSF)
– and its calculation is summarized as: ASF / RSF. The result
should be greater than or equal to 100%.
Net Stable Funding Ratio (NSFR) =
ICD Intelligencer:
BANKINGON BASEL III
Wholesale-Funding Strategy
“The change in the net cash outflow calcu-lation will impact wholesale-funding strate-gies. Unlike retail deposits, wholesale fund-ing typically matures in large volumes on specific dates; offsetting inflows are usually distributed around the funding maturity. To the extent such cash inflows are expected after the corresponding cash outflows, there will be a mismatch.
Traditionally, banks have been managing such mismatches through the use of over-night/short-term funding, such as Federal Reserve funds or repos. Under the proposed methodology, banks will be required to hold additional high quality liquid assets (HQLA) toward such mismatches. ”
– Ernst & Young: Enhanced prudentialstandards for the liquidity coverage ratio
Stock of unencumbered high-quality liquid assets
Net Cash outflows over a 30-day time period≥ 100%
Available amount of stable funding
Required amount of stable funding per asset category≥ 100%
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ICD Intelligencer:
BANKINGON BASEL III
These two key Basel III liquidity requirements LCR and NSFR
could materially change the way banks assess corporate
deposits. The balance sheet structure, including composition
of assets and liabilities, is driven by the bank’s business strate-
gy – and by regulation. Basel III mandates that banks have to
reconsider their appetite for various types of business.
Corporate treasurers and cash managers will need to adjust
to a rapidly evolving set of new regulatory challenges arising
from Basel III as well as recent money market fund Rule 2a-7
reform and the anticipated Fed October 2014 wind down of
the latest quantitative easing. Yet Basel III’s capital require-
ments, liquidity coverage ratio and net stable funds ratio
rules may be the most transformative for corporate treasury
departments and their banks because they alter the core
characteristics of some of their most popular transactions.
“Banks’ greater focus on pricing for risk means that they are
less likely to offer lending lines as a “loss leader” to build
cash management and deposit relationships with corporate
clients. Under Basel III’s leverage and liquidity requirements,
this strategy becomes less attractive even for large, highly
rated companies.
The leverage ratio requires banks to set aside capital even
against lowest risk assets. In addition, the liquidity ratios will
make corporate cash deposits a less attractive and more
expensive form of funding for banks. Under the net stable
funding ratio (NSFR), long-term corporate loans and oth-
er long-term assets will need to be matched by long-term
funding, and under the liquidity coverage ratio (LCR), banks
will have to hold high quality liquid assets (e.g. Treasuries)
against a portion of these deposits.
The LCR requires that a bank hold a prescribed amount of
high-quality (but typically lower-yielding) assets to mitigate
the risk that less “sticky” types of short-term funding could
run off during a stress event. For now, U.S. regulators are fo-
cusing their efforts on the LCR and are expected to address
the NSFR at a later date.” – Roger Merritt, Ian Rasmussen,
Kellie Geressy-Nilsen: Corporate Cash Management Faces
Basel III Challenges - Fitch Wire/Fitch Ratings – June 04, 2013
“The liquidity coverage ratio (LCR) is expected to have an even greater effect on treasurers’ dealings with their banks. The ratio, which measures whether banks are prepared to handle cash outflows over a 30-day stress period, divides bank deposits into two cat-egories: operating deposits, those linked to bank services like payments or payrolls, which are seen as more stable, and non-op-erating deposits.
Under Basel III, operating deposits ‘reflect a deep relationship with the customer,’ Trea-sury Strategies’ Anthony Carfang said. ‘A non-operating deposit is considered to be extra money that the banks probably had to go out and pay a rate in order to attract, or money customers have on deposit that could leave quickly and therefore is less a source of liquidity for the bank.’ Regulators have yet to provide hard and fast definitions of the two types of deposits. Basel III standards make non-operating deposits much less attractive to banks; they will have to back them with high-quality liquid assets, such as government bonds.”
– Treasury & RiskMarch 2014
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BASEL III - IncreaseIn The Cost Of Capital
QUALITY OF CAPITAL
• New definition of Tier 1 Capital much narrower in Basel III vs. Basel II
• Capital that is no longer eligible phased out starting in 2014 and is fully phased out by 2018
• Excludes capital previously allowable such as mortgage servicing rights, deferred tax assets, minority equity interest, treasury stock, goodwill and intangibles
QUANTITY OF CAPITAL
• Three new additional types of capital requirements increase minimum total capital form 7% under Basel II to as much as 16.5% under Basel III
• Capital Conservation Buffer (CCB) of 2.5% which is designed to improve the ability of banks to absorb stresses
• Countercyclical Capital Buffer of up to 2.5% can be imposed by national regulator during periods of rapid credit growth
“Compared to the earlier Basel I and II frame-works, Basel III proposes many additional capital, leverage and liquidity standards to strengthen the regulation, supervision and risk management of the banking sector. The new regulations raise the quality, consistency and transparency of the capital base and strength-en the risk coverage of the capital framework.
The capital standards and additional capital buffers require banks to hold more capital, and higher quality of capital, than under the earli-er Basel II rules. The leverage ratio introduces a non-risk based measure to supplement the risk-based minimum capital requirements. The liquidity ratios ensure that adequate funding is available during periods of stress.”
– Moody’s Analytics
ICD Intelligencer:
BANKINGON BASEL III
Basel II vs. Basel III Capital Ratios
4.5%
7%
9.5%8.5%
11%
2.5%
Core Tier 1 Ratio
+2.5%
+2.5%
+0 to 2.5%+0 to 2.5%
10.5%
13%Varies, depends oncounterparties countries
Basel III Countercyclical BufferBasel III Conservation BufferBasel III Minimum Add-onBasel II Minimum
8%
Tier 1 + Tier 2 Ratio
+2.5%
+0 to 2.5%
6%
4%
Core Tier 1 Ratio
+2%
+2.5%
18
ICD Intelligencer:
BANKINGON BASEL III
REGULATORY ELEMENT PROPOSED REQUIRMENT
Higher Minimum Tier 1Capital Requirement
Capital ConservationBuffer
CountercyclicalCapital Buffer
Higher Minimum Tier 1Common Equity Requirement
Liquidity Standard
Leverage Ratio
Minimum Total Capital Ratio
Source: Bank for International Settlements, Basel Committee on Banking Supervision.
• Tier 1 Capital Ratio: increases from 4% to 6%• The ratio is set at 4.5% from 1 January 2013, 5.5% from 1 January 2014 and 6% from 1 January 2015• Predominance of common equity will now reach 82.3% of Tier 1 capital, inclusive of capital conservation buffer
• Tier 1 Common Equity Requirement: increase from 2% to 4.5%• The ratio is set at 3.5% from 1 January 2013, 4% from 1 January 2014 and 4.5% from 1 January 2015
• A supplemental 3% non-risk based leverage ratio which serves as a backstop to the measures outlined above• Parallel run between 2013-2017; migration to Pillar 1 from 2018
• Remains at 8%• The addition of the capital conservation buffer increases the total amount of capital a bank must hold to 10.5% of risk-weighted assets, of which 8.5% must be tier 1 capital• Tier 2 capital instruments will be harmonized; tier 3 capital will be phased out
• Used to absorb losses during periods of financial and economic stress• Banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirement to 7% (4.5% common equity requirement and the 2.5% capital conservation buffer) in 2013• The capital conservation buffer must be met exclusively with common equity• Banks that do not maintain the capital conservation buffer will face restrictions on payouts of dividends, share buybacks and bonuses
• A countercyclical buffer within a range of 0% - 2.5% of common equity or other fully loss absorbing capital will be implemented according to national circumstances• When in effect, this is an extension to the conservation buffer and so could result in a common equity requirement of as much as 9% in 2013 (4.5% common equity requirement, plus 2.5% capital conservation buffer, plus 2.5% countercyclical capital buffer)
• Liquidity Coverage Ratio (LCR): to ensure that sufficient high quality liquid resources are available for one month survival in case of a stress scenario. Phased introduction from 1 January 2015• Net Stable Funding Ratio (NSFR): to promote resiliency over longer-term time horizons by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing structural basis• Additional liquidity monitoring metrics focused on maturity mismatch, concentration of funding and available unencumbered assets
19
Globally Systemic Important Banks (G-SIB)A G-SIB is defined as a financial institution whose distress
or disorderly failure, because of its size, complexity and
systemic interconnectedness, would cause significant disrup-
tion to the wider financial system and economic activity.
- gfma.org
The Basel Committee on Banking Supervision has identified
a total of 29 banks that have been identified as Global
Systemically Important Banks (G-SIB).
In November 2011 the Financial Stability Board (FSB) published
an integrated set of policy measures to address the sys-
temic and moral hazard risks associated with systemically
important financial institutions (SIFIs). In that publication,
the FSB identified as global SIFIs (G-SIFIs) an initial group
of global systemically important banks (G-SIBs), using a
methodology developed by the Basel Committee on Banking
Supervision (BCBS).
The November 2011 report noted that the group of G-SIFIs
would be updated annually based on new data and published
by the FSB each November. Beginning with the November
2012 update, the G-SIBs were allocated to buckets corre-
sponding to the higher loss absorbency requirements that
they would be required to hold from January 2016.
The FSB and the BCBS have updated the list of G-SIBs, using
end-2012 data and an updated assessment methodology
published by the BCBS in July 2013. One bank has been
added to the list of banking groups identified as G-SIBs
in 2012, increasing the overall number from 28 to 29. The
group of G-SIBs will be next updated in November 2014.
– Financial Stability Board. 2013 Update of Global System-
ically Important Banks [G-SIBs] 11/11/2013)
ICD Intelligencer:
BANKINGON BASEL III
Unlike Basel I and Basel II, which focused on the level of bank loss reserve requirements for different assets classes, Basel III brings significant structural changes to banks which are aimed at strengthening bank capital requirements by increasing liquidity and decreasing bank leverage.
2.0%
BarclaysBMP ParibasCitigroupDeutsche Bank
2.5%
HSBCJP Morgan
3.5%
Currentlyempty
1.0%
Bank of ChinaBNY MellonBBVAGroupe BPCEIndustrial and CommercialBank of China LimitedING BankMitzuho FGNordeaSantanderSociéte GénéraleStandard CharteredState StreetSumitomo Mitsui FGUnicredit GroupWells Fargo
1.5%
Bank of AmericaCredit SuisseGoldman SachsGroupe CréditAgricoleMitsubishi UFJ FGMorgan StanleyRBSUBS
20
Additional Basel III StandardsBASEL III CAPITAL & LIQUIDITY STANDARDS
The new Basel III regulations will affect all banks, however
the severity of the impact will differ according to the type,
scale and location of banks.
Most banks will be impacted by the increase in quantity and
quality of capital, liquidity and leverage ratios, as well as the
enhanced requirements for pillar 2 and capital preservation.
Most sophisticated investment banks will be affected by the
amended treatment of counterparty credit risk, the more ro-
bust market risk framework and to some extent, the amended
treatment of securitizations.
HIGHER MINIMUM TIER 1 CAPITAL REQUIREMENT
• Tier 1 Capital Ratio: increases from 4% to 6%
• The ratio is set at 4.5% from 1 January 2013, 5.5% from 1 January 2014 and 6% from 1 January 2015
• Predominance of common equity will now reach 82.3% of Tier 1 capital, inclusive of capital conservation buffer
CAPITAL CONSERVATION BUFFER
• Used to absorb losses during periods of financial and economic stress
• Banks will be required to hold a capital conservation buffer of 2.5% to withstand future periods of stress bringing the total common equity requirement to 7% (4.5% common equity requirement and the 2.5% capital conservation buffer) in 2013
• The capital conservation buffer must be met exclusively with common equity
• Banks that do not maintain the capital conservation buffer will face restrictions on payouts of dividends, share buybacks and bonuses.
COUNTERCYCLICAL CAPITAL BUFFER
• A countercyclical buffer within a range of 0% - 2.5% of common equity or other fully loss absorbing capital will be implemented according to national circumstances
• When in effect, this is an extension to the conservation buffer and so could result in a common equity require-ment of as much as 9% in 2013 (4.5% common equity requirement, plus 2.5% capital conservation buffer, plus 2.5% countercyclical capital buffer)
ICD Intelligencer:
BANKINGON BASEL III
21
HIGHER MINIMUM TIER 1 COMMON EQUITY REQUIREMENT
• Tier 1 Common Equity Requirement: increase from 2% to 4.5%
• The ratio is set at 3.5% from 1 January 2013, 4% from 1 January 2014 and 4.5% from 1 January 2015
LIQUIDITY STANDARD
• Liquidity Coverage Ratio (LCR): to ensure that sufficient high quality liquid resources are available for one month survival in case of a stress scenario. Phased introduction from 1 January 2015
• Net Stable Funding Ratio (NSFR): to promote resiliency over longer-term time horizons by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing structural basis
• Additional liquidity monitoring metrics focused on ma-turity mismatch, concentration of funding and available unencumbered assets
LEVERAGE RATIO
• A supplemental 3% non-risk based leverage ratio which serves as a backstop to the measures outlined above
• Parallel run between 2013-2017; migration to Pillar 1 from 2018
MINIMUM TOTAL CAPITAL RATIO
• Remains at 8%
• The addition of the capital conservation buffer increases the total amount of capital a bank must hold to 10.5% of risk-weighted assets, of which 8.5% must be tier 1 capital
• Tier 2 capital instruments will be harmonized; tier 3 capital will be phased out
• Regulatory liquidity risk reports will have to be produced at least monthly with the ability, when required by regulators, to be delivered weekly or even daily. This is challenging banks to put in place robust automated re-porting solutions to meet this need.
• The first challenge banks will face is to consolidate clean exposures, liabilities, counterparties and market data in a centralized risk data platform. All portfolios’ contractual and behavioral cash flows should be made available and banks should have the ability to stress those and produce liquidity gap analysis according to various scenarios. LCR buffer eligibility and haircut rules rely on external ratings, Basel classification of counterparties and standardized credit risk weights. The LCR numerator run-off rates as well as NSFR, Available Stable Funding and Required Stable Funding factors also depend on such information, usually only available in risk specific systems.
ICD Intelligencer:
BANKINGON BASEL III
“The next challenge banks face is interfacing or merging their current risk and finance systems to meet the new Basel III Liquidity Risk ratio requirements. The funding concen-tration monitoring requirement will require banks to put in place a clean hierarchical referential of counterparties for consolidat-ing their liabilities. Different LCR ratios will have to be produced per consolidation level and currencies. As it is already the case for credit risk rules, international banks will have to cope with various national discretions and local flavors for such new liquidity ratio rules and will have to generate various kinds of liquidity risk regulatory reporting templates in different electronic formats per jurisdiction.”
– Moody’s Analytics – Basel III Capital and Liquidity Standards, November 2013
22
Banks Struggle To StabilizeBasel III Liquidity Coverage Ratios are also impacting the
Repo market - a significant and substantial short-term staple.
Repo is facing bombardment by a variety of regulatory ac-
tivity, potential new taxation (FTT), additional new Leverage
Ratios from Dodd-Frank (Section 165) and added to Basel III
LCR-driven bank balance sheet requirements, this is going to
make Repo a more expensive, less attractive institutional
money commodity especially at month-end when financial
statements are produced. The new rules could translate
into a very volatile month-end market with wide spreads
as corporates hunt for month-end financing.
“Banks have choices to make: raise more capital or shed
assets. Deutsche Bank plans to cut a sizable chunk from
its repo business as part of the balance-sheet shrinkage, be-
cause they would have negative capital ratios if Dodd-Frank
Section 165 was in effect right now. Société Générale says
Dodd-Frank Section 165 will decrease its operations in the
US and with US customers. A Goldman Sachs presentation
not only showed that Repo businesses [at large banks] would
consume significantly more capital, they also estimate the
costs of doing Repo for these banks will increase between
9 and 77 basis points just from the Leverage Ratios. Mor-
gan Stanley announced in January 2013 that they’re cutting
assets in fixed income and commodities to less than $200
billion by the end of 2016, down from $390 billion at the end
of 2011. UBS plans to slash assets by 50% from 2011 to 2017.
According to Barclays, ‘Can banks address the $30bn of
additional capital we identified simply by reducing Repo?
The answer is yes’. One of the unintended consequences
of Leverage Ratios is that bank balance sheets will shed
risk-free (lower-yielding) assets (like Repo) in favor of more
speculative, higher-yielding assets. This will reduce the size
of the Repo market and bring back wider spreads.” – Scott
E.D. Skyrm, New Regulation And The Repo Market: Leverage
Ratios, Treasury NL - April 2, 2014.
“Basel III and other regulations aimed at reducing the risk of another financial crisis are starting to upend a key part of the bond market that expedites trading in everything from Treasuries to junk bonds. The U.S. re-purchase, or repo market where banks and investors borrow and lend Treasuries and other fixed-income securities shrunk to $4.6 trillion daily outstanding in July 2013, down 35 percent from a peak of $7.02 trillion in the first quarter of 2008, based on Federal Reserve data compiled from its 21 primary dealers.
From fewer repos to lower inventories of bonds, financial institutions are responding to more stringent capital standards imposed by regulators around the world. Already, the group of dealers and investors that advise the U.S. Treasury say that they see declines in liquidity in times of market stress, including wider gaps between bid and offer prices and the speed of completing trades. The potential consequences are higher borrowing costs for governments, companies and consumers.”
– Matt Levine By Liz Capo McCormick and Anchalee Worrachate – Repo Market Declines
Raises Alarm as Regulation Strains Debt – Bloomberg, August 19, 2013
ICD Intelligencer:
BANKINGON BASEL III
23
On July 9, 2014 Federal Reserve officials identified an end
date to the current quantitative easing, saying that they
will quickly cut off monetary injections from $35 billion a
month to zero by October 2014 if all goes according to
plan. Nothing was said about the possibility of rising inter-
est rates, though it is anticipated that the bond market will
price it in ahead of any official policy action taken. Expect
some corollary increase in interest rates.
With anticipated rising interest rates, Earnings Credit Rates
(ECRs) will become a diminishing factor in the fee services
calculus and with the addition of pressure from new Basel III
rules, as corporate non-operational cash deposits become
more of a burden than an asset on leaner bank balance
sheets.
All of these collective factors will require corporate treasury
to work smarter and with more discipline in evaluating
liquidity products and short-term investments. In addition
to more broadly diversifying asset classes in corporate port-
folios, practitioners will need to more carefully evaluate
and monitor the instruments of those asset classes and the
sponsors of their holdings.
Corporates will also need to seek a greater portfolio diver-
sification of counterparties, countries and products. With
banks dis-incentivized to hold non-operating capital, repo
and bonds, treasury departments will also need to look for
alternative longer-term investments and expand their li-
quidity planning processes to lay off cash. Where is the cash
going to go? It is likely to be placed with money market funds,
short duration bond funds, separately managed accounts
and direct investments.
ICD Intelligencer:
BANKINGON BASEL III
Possible new repo market scenarios:
1. Banks will only fund their own positions. If they’re long, they loan the securities, if they’re short, they borrow them. Repo desks at banks become solely “funding desks.”
2. Customers could set up automatic fund-ing relationships with a bank or their prime broker. Here, the bank agrees to fund all of the customer’s positions at a pre-negotiated spread. The bank looks at all the revenue generated in all products from the customer, making the financing tied to overall business profitability.
3. Customers may be forced to hunt around the Street for banks with offsetting posi-tions. Remember, banks no longer make markets for customers so if customer is short 10 year notes, for example, they must look for a bank that is specifically long the security and hasn’t yet loaned it into the market.
4. There will be more end-user customers joining central clearing counterparties like Fixed Income Clearing Corp, LCH. Clearnet, and Options Clearing Corp (OCC).
5. There will be more repo trading between end-user customers directly with other end-user customers.
“The FOMC minutes released last week indicate that the Fed may overhaul its monetary policy benchmark rate – the federal funds rate. A Repo rate is clearly better than the fed funds rate. There’s been a decline in fed funds volume over the years for a reason. It’s just not as important anymore. The Repo market is a $4.5 trillion a day market and represents funding rates in both the banking system and ‘the shadow bank-ing system’ – the entire financial system. But that all changed last week with the release of the FOMC minutes. It appears Repo is no longer in the running.”
– Scott E.D. Skyrm July 17, 2014
24
Alternative Investment ProductsICD’s Corporate Treasury Investment Guide summarizes
the various available investment options in the market
and assesses them based on preservation of capital, li-
quidity and yield in today’s global economic environment.
In considering the available investment options, corpo-
rate treasury should look to design the optimal portfolio
that meets their investment objectives and risk tolerance.
This requires all prospective investments to be evaluated
through an exposure analytics process to understand the
portfolio’s aggregated counterparty risks.
ICD Intelligencer:
BANKINGON BASEL III
CAPITAL PRESERVATION
HIGH
MEDIUM
LOW
HIGH
MEDIUM
LOW
LIQUIDITY
HIGH
MEDIUM
LOW
YIELD
With corporate cash investment portfolios becoming more di-
verse and more complex with less traditional product supply,
practitioners will be required to master treasury risk management
disciplines to more deeply evaluate alternative asset classes, fund
families, fund managers, counterparties, and country exposure.
The integration of ERP systems, treasury work stations, banks and
fund trading portals with risk management platforms have be-
come a treasury department operational necessity.
As treasury professionals better understand their counterpar-
ty concentration, they must also evaluate the relative financial
strength of their counterparties, which is best performed using
leading indicator metrics. The best way to evaluate and monitor
one’s entire investment portfolio is by harnessing and aggregat-
ing these exposure analytic capabilities and incorporating them
deeper into the daily treasury operational processes. Risk man-
agement has become a core treasury function. It has become im-
possible to function without it and broader corporate intelligence
requires new methods for sharing treasury intelligence and hav-
ing methodologies in place to act on it.
UNINSURED BANK DEPOSITS Capital Preservation good, however with over 400 bank failures since 2008 there is some principal risk. Liquidity high except in the event of counterparty failure. Yield extremely low.
CAPITAL PRESERVATION LIQUIDITY YIELD
FDIC INSURED BROKERED CDS Capital Preservation excellent, assuming CDs are held to maturity, as principal is backed by the United States Government. Liquidity available, but subject to market demand. Yield good for govern-ment-backed investments.
CAPITAL PRESERVATION LIQUIDITY YIELD
TREASURY INSTITUTIONAL MMFS Capital Preservation excellent as securities are direct obligations of the United States Government. Same day Liquidity. Yield extremely low.
CAPITAL PRESERVATION LIQUIDITY YIELD
GOVERNMENT INSTITUTIONAL MMFS Capital Preservation very good as securities are backed by the United States Government and/or Government Agencies. Same day Liquidity. Yield extremely low.
CAPITAL PRESERVATION LIQUIDITY YIELD
PRIME AAA INSTITUTIONAL MMFS Capital Preservation very good based on diversification and 40+ year MMF history. Same day Liquidity. Yield low.
CAPITAL PRESERVATION LIQUIDITY YIELD
GENERAL PURPOSE PRIME INSTITUTIONAL MMFs Capital Preservation very good based on diversification and 40+ year MMF history. Same day Liquidity. Yield low.
CAPITAL PRESERVATION LIQUIDITY YIELD
DIRECT INVESTMENTS This option requires internal investment expertise and resources. Capital Preservation, Liquidity and Yield vary.
CAPITAL PRESERVATION LIQUIDITY YIELD
CAPITAL PRESERVATION LIQUIDITY YIELDGOVERNMENT ULTRA SHORT BOND FUNDS Capital Preservation good as securities are backed by the United States Government and/or Government Agencies, but can be sensi-tive to interest rates. While not designed vfor heavy trading, these products provide next day Liquidity. Yield good in general and excellent for a government-backed investment.
PRIME ULTRA SHORT BOND FUNDS Capital Preservation good based on diversification but can be sen-sitive to interest rates and credit risk. While not designed for heavy trading, these products provide next day Liquidity. Yield excellent.
CAPITAL PRESERVATION LIQUIDITY YIELD
GOVERNMENT SEPARATELY MANAGED ACCOUNTS In general, Capital Preservation good as securities are backed by the United States Government and/or Government Agencies, but can be sensitive to interest rates. Liquidity low as SMAs are gen-erally designed for a 9-month to 2-year time horizon. Yield good in general and excellent for a government-backed investment.
CAPITAL PRESERVATION LIQUIDITY YIELD
PRIME SEPARATELY MANAGED ACCOUNTS In general, Capital Preservation good based on diversification but can be sensitive to interest rates and credit risk. Liquidity low as SMAs are generally designed for a 9-month to 2-year time horizon. Yield excellent.
CAPITAL PRESERVATION LIQUIDITY YIELD
25
26
ICD Intelligencer:
BANKINGON BASEL III
Be PreparedSo what does Basel III mean for corporate treasury?
Basel III brings changes, complexity and challenges to the
banking system that will also impose changes, complex-
ities and challenges to corporate treasury systems and
strategies. Treasury departments have to mature quickly
as they are now expected to become technology centers
and intelligence hubs for their corporations. Treasury tech-
nology is not a modernizing luxury – it is a necessity for
survival and growth. Technology not only streamlines and
automates treasury processes, it expands the categories of
functionality, decision support, intelligence and forecasting.
Basel III regulations will disincentivize non-operational
bank deposits and may reduce investment supply. This will
lead to corporate treasury widening their asset allocation
of investment portfolios. Corporations will need to update
their investment guidelines to add investment products that
match their risk profile and investment objectives.
Corporate portfolios will be diversified with multiple invest-
ments within several investment product categories. In-
creasing the need for secure and efficient trading, reporting,
and analytics that show a portfolio’s aggregated exposure to
counterparties. Continued importance will be placed on eval-
uating the relative financial strength of counterparties and
ensuring that portfolios comply with investment guidelines.
As yields begin to rise, corporations will look to optimize
returns within their risk and liquidity parameters. All portfolio
and exposure reports should be archived on a secure server
that can be accessed on demand by approved parties.
Coda
The challenges directly ahead for corporate treasury are
many. All of them point to the need for a sound, technologi-
cally advanced and deeply integrated foundation. Treasury
Strategies refers to the new corporate nerve center as Trea-
sury 3.0. ICD has led the marketplace with the development
of benchmark trading portal, risk management and security
technologies and they are purpose-built for rapid integra-
tion to treasury management systems, enterprise resource
planning and banking platforms.
Next generation practitioners will need this more advanced
and integrated treasury capability to navigate through in-
terest rate volatility, Rule 2a-7 reform, new banking regu-
latory challenges, a greater diversification of investment
products and asset classes, compliance resetting while at
the same time automating processes, improving efficiencies
and expanding the overall intelligence of corporate finan-
cial operations.
Basel III is introducing sweeping new bank regulation and
reform. The financial world is counting on the international
banking agencies to make the right regulatory decisions
and proper, prudential adjustments. The good news is that
advanced treasury technologies are here as well. They require
fresh energy and a comprehensive approach from dedi-
cated practitioners and disciplined professionals who are
ready to take command of complex and critically important
treasury operations. The stage is set. Basel III has arrived.
27
ICD Intelligencer:
BANKINGON BASEL III
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