From the September Special Report issue of Treasury & Risk magazine

Rewriting the Rules: How New Financial Regulations are Expected to Impact Corporate Liquidity Management

In response to the financial crisis, regulators and governments worldwide have embarked on a series of measures designed to make the global financial system more robust. Two of the most significant measures are Basel III, which aims to strengthen the global banking system, and global Money Market Fund changes, including to Securities and Exchange Commission (SEC) Rule 2a-7, which are designed to better protect money market fund (MMF) investors. Both have major implications for corporate liquidity management and short-term investment strategies.

A large part of Basel III is focused on increasing the amount of capital banks are required to hold against certain assets. However, Basel III—which is due to be phased in over six years starting this year—also imposes liquidity requirements on banks. Both the capital and liquidity requirements of Basel III are designed to strengthen the banking system and should therefore increase corporations’ confidence in working with large banks. However, they are also likely to have consequences that companies need to anticipate. In particular, liquidity ratio requirements will change the value of different types of deposits placed with banks.

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