The global financial crisis of 2007 drew attention to failures by financial services institutions to adequately manage their risks. Governments and regulatory bodies around the world have responded by issuing a spate of new laws and regulations, including the Dodd-Frank Act, the Basel III framework, and updates to the European Union's (EU’s) Markets in Financial Instruments Directive (MiFID) and European Market Infrastructure Regulation (EMIR).
In combination, these new guidelines will have a significant impact on how banks do business—which will necessarily impact their relationships with corporate clients. Treasury & Risk spoke with Takis Sironis, risk management senior principal with Accenture, to discuss what corporate clients can expect from their banks in the near future, and what they can do now to prepare.
T&R: What is the final area in which the regulations will affect banking relationships?
TS: It’s liquidity, which will definitely have a major impact on the banks, but it will also be important to their corporate clients. Under Basel III, there are two new liquidity measures that banks need to conform with: the liquidity coverage ratio, which requires banks to maintain a buffer of high-quality assets to cover 30 days of outflows around liabilities, and the net stable funding ratio, which requires them to keep long-term assets for funding and a minimum level of stable liabilities in relation to their liquidity risk profiles.
T&R: Should corporate treasurers just sit down and talk to their banks about where they’re going?
TS: That is the obvious way to respond. But a best practice, particularly for large companies, is to take a proactive approach to monitoring and assessing their banking counterparties. Some treasury departments in large corporations are offering an educational program to help treasury and finance employees understand the impacts of the regulations. They have reviewed their major products and major exposures, at least, and they keep abreast of all the changes. How sophisticated and how comprehensive this type of program needs to be varies from company to company.