Sibos 2010 Day Three - Banks and corporates need to ‘collaborate’ to anticipate risks

28 October 2010

Day three in Amsterdam and the Sibos “bubble” of networking, meetings, talks has well and truly descended over the RAI conference centre.

Although the event is well past the half way point, those still standing will know that the pace and volume of dialogue surrounding the core themes of the event has refused to let up.

The spectres of liquidity management, risk and regulation has not been vanquished by the ongoing interactions of Sibos. Simon Bailey, director of payments and transaction banking at Logica, talked of the huge pressures facing governments and banks as they look to decipher liquidity risk.

He suggested that banks are most fearful of being asked: “How much money have you got at this precise moment?”, as an accurate answer would be impossible. Bailey also stated how liquidity risk is a concept which few people from the numerous banks, regulators and vendors understand - the challenge stems from many being unable to grasp the meaning of the original question.

Both Bailey and Sebastien Boschiero, managing consultant at the firm, talked of the complex processes involved in banks sourcing accurate data to assess their liquidity risk.

Basel III was also mentioned by the former, who said that regulatory overhaul adds up to “extreme heat, some stress and a little confusion” for financial institutions to confront.

Elsewhere a panel comprising representatives from two corporates and two banks discussed the impact of the financial crisis on their risk management processes in a debate entitled ‘Managing risk after the crisis - What has changed?’

Matt West, director and assistant treasurer in global treasury for Procter & Gamble (P&G), was the first panel member to speak remarking that it had been a “wild ride” for the sector over the last three years.

He discussed how P&G maintained a double A credit rating during the crisis, which although deemed overly conservative by some, allowed the firm to reinvest in the company.

Peter van Rood, corporate director of treasury at AzkoNobel, went through a different experience as his firm was downgraded during January 2009.

He said that as a result, AzkoNobel was forced to adopt more conservative financial policies and spread the firm’s point-in-time risk within its debt book - van Rood said the experience made the firm think twice about its capital spread and remember that it is good business practice “not to keep all of one’s eggs in one basket”.

Jose Franco, global head of corporate banking, liquidity at Bank of America Merrill Lynch, offered a bank’s perspective. He said: “Liquidity is the lifeblood of any organisation”, and added that it is important for corporate firms to have the “correct amount of liquidity in the correct location in the correct currency”.

The panel also discussed how in the aftermath of the financial crisis banks and corporates need to work more collaboratively with Franco emphasising how their relationship needs to be increasingly “honest”.

He said that the impact of the financial crisis meant there was increased emphasis on banks enhancing cash visibility and greater control of their liquidity.

The debate finished on a note of warning to the financial services industry when anticipating the future.

Peter van Rood emphasised how the challenge for firms is to ensure they are “agile and nimble” enough to foresee future issues which may disrupt the markets.

He stated that financial crises never stem from the same sources and warned that credit and liquidity issues are not likely to be the next threat to the economy and markets. Van Rood speculated that instability could lie within emerging markets or in new economic policies, but emphasised how there was no way of being sure.

As Professor Charles Goodhart from the London School of Economics warned on the first day of Sibos, “the crystal ball is still filled with cloud”.

By Jim Ottewill

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