Enhancing Cash Pooling for Effective Liquidity Management in Corporate Banking (Analyst Insight)

Introduction

The financial and economic crisis has heightened the importance for corporate treasuries to achieve full cash visibility and accessibility. This is increasing the demand for liquidity management from corporate banks on top of cash management services. Providing cash pooling is a key enabler for this, and innovation in this service is set to be a competitive necessity in the current environment.

Scope

*Analysis of cash pooling across physical and notional pooling, with examination of developments in multi-currency, cross border and multi-bank pooling

*Examination of the relevance of different cash pooling options across North America, Europe and Asia Pacific

*Focus on development in cash and liquidity management innovation for both top-tier, global financial institutions and tier 2 regional/ domestic banks

Highlights

The credit crisis has elevated the importance of managing cash liquidity within the corporate treasury function over return on investment from surplus cash. With the increased cost and lower availability of credit, the consequences of mismanaging liquidity have become greater.

From a corporate treasury perspective, both physical and notional cash pooling have become an essential component of liquidity management practices, and basic cash pooling is regarded as a standard service for bank cash management services in most developed banking markets.

Key benefits cross-border cash pooling include -companies can manage treasury operations at a global level, providing higher scale to negotiate favourable terms with primary bank partners, allowing policy consistency, and creating a centralized view and reporting of overall balances across the group.

Reasons to Purchase

*Examination of the impact of financial crisis on corporate banking business and IT priorities.

*Liquidity management has become one of main investment growth areas in banking, and cash pooling innovation remains areas of continued innovation.

*Analysis of success factors for delivering cross-border, multi-bank cash pooling

Report Highlights

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Overview 1
Catalyst 1
Summary 1
Table of Contents 2
Table of figures 3
Analysis 4
Cash and liquidity management has become the key focus for corporate banks in the downturn 4
Cash management has shifted from a relationship loss leader to a core revenue growth engine 5
Cash management, and within this liquidity management, is the top requirement from corporate treasuries 6
Corporates' cash management need has shifted to the receivables side in downturn 7
Ensuring cash liquidity, rather than return on surplus cash, is the top liquidity management requirement 8
Banks need to offer more sophisticated cash pooling to remain competitive 9
Cash concentration, a physical form of cash pooling, is already well-developed within domestic markets 9
Notional pooling, a more tax-friendly form of virtual pooling, has been the main area of innovation 10
The financial crisis has accelerated demand for cross-border cash pooling, turning interest into action 10
Increasing corporate treasury centralization makes cross-border cash pooling a necessity 11
Local regulations present barriers to cross-border pooling, but treasuries are looking to overcome these 11
Pooling benefits to banks are strongest in customer retention and acquisition rather than top-line growth 12
The next phase of cash management innovation will be focused on multi-bank cash pooling services 13
Cross-border cash pooling has been driven by top-tier banks, but will become essential for the second tier 13
Effective cash pooling requires flexible fee capability, product breadth and strong client connectivity 14
Cross-border, multi-bank service needs to support an array of pooling products with high automation 14
Banks need to incorporate flexible fee-charging structures to cover costs and support acquisitions 15
Recommendations 16
Vendors should bring offerings to market as soon as possible given the rush to enter this space 16
Bank-to-client back-office integration offers a potential opportunity for vendors 16
APPENDIX 17
Definitions 17
Further reading 17
Ask the analyst 17
Datamonitor consulting 17
Disclaimer 17
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List of Tables
List of Figures
Figure 1: Banking services demanded by corporate treasuries for primary and secondary banks 6
Figure 2: Main liquidity management product/service types 8
Figure 3: Corporate banks are focused on enhancing their capabilities to handle global clients 12
Figure 4: Main types of pooling approaches required in global cross-border cash pooling 15
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