As Basel III continues to play an important part in how treasurers operate, treasury management system provider Reval has published information on the regulation as a reminder that retaining the attitude that compliance is only for banks could mean that corporate treasury departments are left unprepared.
Basel III (or the Third Basel Accord) was put in place in 2009, after the 2008 financial crisis. The new rules drawn up by the Basel Committee of Banking Supervision focus on the risks of a bank run where a large number of customers withdraw their deposits from a financial institution at the same time and either demand cash or transfer those funds to a safer institution that they believe to be more solvent than a bank.
Moorad Choudhry for Treasury Insider explains that compliance with the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) is required of all banks, but asks whether this is an effective way of determining how successful a bank is. “But to what extent does a particular value for either metric inform us of the stable funding position of a bank? Put another way, how useful are LCR and NSFR for actual balance sheet management purposes?,” Choudhry says.
In an easy to follow five step graphic, Reval places importance on rethinking strategy and cutting back on unnecessary functions. At first, it is important to ensure that the bank portfolio is kept up to date so treasurers can minimise counterparty risk and bank costs.
Alongside this, treasurers should be thinking about alternatives such as issuing corporate bonds and instruments such as money market funds or other long term investments. Reval also advises reviewing credit facilities as treasurers should be aware of the credit lines with each bank partner to then see whether cash pooling or netting is a good idea.
Finally, optimising working capital can be done so by improving cash forecasting and be prepared for when short term funding will rise. Cloud and risk technology has also helped corporate treasurers to master Basel III by increasing visibility into global bank accounts, efficiency, control and saves cost, as Reval reports.