The Boot is now on the other Foot

A corporate’s attitude to its banks is changed by the Basel III capital and liquidity requirements regarding the supply of traditional banking services. Just as banks have to improve their cash management solutions as a result, corporate treasurers will now source their lending, and their cash management and transactional services in a different way. The market is up for grabs.

The large corporate market has long been the most valued and keenly contested part of a bank’s customer base. But the market has been changed by Basel III, the regulators’ response to the credit crunch. This has heightened, as the new liquidity and capital requirements have become apparent.

• Corporate lending has become less attractive to banks. It costs more. And quite apart from this, other funding sources are becoming viable to a corporate.

• The daily transaction flow to and from the corporate (or FI) will generate a low or a high liquidity usage during the settlement day. Typically, banks do not slow down corporate flows, but are now incented to work with their corporate customers to smooth cash-flows and reduce the daily burden upon a bank’s liquidity usage within the settlement process – in both parties’ interests.

• A corporate’s cash balances now require analysis to determine what proportion are “operational deposits” and what are genuinely sticky term deposits of 30 days or more (for the purposes of calculating a bank’s LCR). It is in a bank’s interests to re- visit its product range and to increase the efficiency of a corporate’s management of its operating cash.

Basel III brings tighter regulation to the liability side of a bank’s balance sheet, highlighting the value of sticky term deposits. All of this will reduce credit availability to customers, increase a bank’s appetite for eligible deposits, and affect the pricing for certain services. This is likely to change banks’ financial strategies and cause them to introduce new incentives for the relationships/deposits that help their ratios … and new disincentives for those that hurt. Several senior bankers have already voiced the view that tighter regulation in this area will bring intraday pricing for both cash & collateral liquidity!

Above all, the hunt for liquidity is hugely important to banks – for example it was estimated that in 2012, Fiat had a cash pile of €19.2 billion –more than half of which was deposited with 30-plus US and European banks. The amount of liquidity held by European corporates has increased from a combined total of €300 billion three years ago to around €500 billion today, according to research by Barclays Capital. In the US, cash held by corporations in the U.S. rose by over 6% in the third quarter of this year. Corporate cash now stands at $1.925 trillion, up from $1.811 trillion at the end of June. Corporate deposits have been targeted by banks during the post-crunch period, in which corporates have been hoarding cash. How will this be impacted by Basel III from January 2015?

This all feels like a perfectly sensible re-alignment of interests, from which both a bank and its customer can benefit. But it does move the market further into a buyer’s one, in which a bank has to further improve its cash management services and tools and the pricing of its lending and deposit services in order to be able to compete effectively for corporate and correspondent banking business. And it makes the management of intraday liquidity as important to a corporate as it is to a bank.

So, how does a bank best compete? Or, a better question might be – how does a bank align its cash management services, credit and deposit products and pricing, in such a way as to both appeal to the corporate customer, and satisfy the needs of the bank – its corporate bankers, its treasury managers and payment operations – at the same time


This is a reprint of an article from TSCL’s recent Newsletter 17 – for more information and a copy of the full Newsletter, please email