Treasury Strategies on Regulatory Reform

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Presentation by Treasury Strategies to National Association of Corporate Treasurers on the impact of regulatory reform on corporate finance, banking and the securities industry.

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Treasury Strategies on Regulatory Reform

  1. 1. Impact of Financial Regulation on Corporate Treasury Presented By: Anthony J Carfang, Partner Cathryn R. Gregg, Partner To: National Association of Corporate Treasurers September 9, 2009
  2. 2. Agenda <ul><li>Overview </li></ul><ul><li>Regulatory changes impacting treasurers </li></ul><ul><li>Two specific items of concern </li></ul><ul><li>Preparing for the new (post-crisis) world </li></ul>
  3. 3. Overview – Massive, Intrusive & Global <ul><li>Massive </li></ul><ul><ul><li>Covers all aspects of financial markets </li></ul></ul><ul><ul><li>Alters the flow of capital </li></ul></ul><ul><li>Intrusive </li></ul><ul><ul><li>Into the details—compensation, culpability, organizational structure </li></ul></ul><ul><ul><li>Heavy on compliance </li></ul></ul><ul><li>Global </li></ul><ul><ul><li>Most countries developing their own schemes </li></ul></ul><ul><ul><li>International bodies weighing in </li></ul></ul><ul><ul><li>Like an arms race </li></ul></ul>
  4. 4. Regulatory Change Impacting Treasurers <ul><li>Major Regulatory Initiatives </li></ul><ul><ul><li>United States – “Foundation,” Group of 30 </li></ul></ul><ul><ul><li>United Kingdom – The Turner Report, CP0822 </li></ul></ul><ul><ul><li>European Union – The de la Rossier Report </li></ul></ul><ul><ul><li>Others – BCBS/BIS, Walker, G20, … </li></ul></ul>
  5. 5. Regulatory Change Impacting Treasurers <ul><li>Key US Regulatory Initiatives </li></ul><ul><ul><li>Group of 30 Report </li></ul></ul><ul><ul><li>Obama – “A New Foundation” </li></ul></ul><ul><ul><li>SEC and CFTC money market mutual Fund proposals </li></ul></ul><ul><ul><li>SEC and CFTC derivatives proposals </li></ul></ul><ul><ul><li>Consumer Financial Protection Agency </li></ul></ul><ul><ul><li>FTC Mandates </li></ul></ul><ul><ul><li>FDIC Initiatives </li></ul></ul><ul><ul><li>Treasury Department Initiatives </li></ul></ul>
  6. 6. Regulatory Change Impacting Treasurers <ul><li>Major Regulatory Themes </li></ul><ul><li>Curtail non-bank money market activity </li></ul><ul><ul><li>Derivatives </li></ul></ul><ul><ul><li>Commercial paper </li></ul></ul><ul><ul><li>Money market funds </li></ul></ul><ul><li>Raise capital requirements </li></ul><ul><ul><li>Banks </li></ul></ul><ul><ul><li>Broker dealers </li></ul></ul><ul><ul><li>Clearing corps </li></ul></ul><ul><ul><li>Insurance companies </li></ul></ul><ul><li>Increase liquidity buffers for financial services providers </li></ul><ul><ul><li>Must hold shorter duration instruments </li></ul></ul><ul><ul><li>More government securities </li></ul></ul>
  7. 7. Regulatory Change Impacting Treasurers Commercial Banks Investors & Depositors Borrowers 99% 99% <ul><li>Banking Pre 1965 </li></ul><ul><ul><li>High concentration risk </li></ul></ul><ul><ul><li>Lack of transparency </li></ul></ul>
  8. 8. Regulatory Change Impacting Treasurers <ul><li>Modern Money Markets </li></ul><ul><ul><li>Efficient </li></ul></ul><ul><ul><li>High transparency </li></ul></ul><ul><ul><li>Diversified risk portfolio </li></ul></ul>Commercial Banks Investors & Depositors Borrowers 15%-20% 80%-85% Securities Dealers Money Market Funds Direct Instruments Markets (CP, Repo) 15%-20% 80%-85%
  9. 9. Regulatory Change Impacting Treasurers Commercial Banks Investors & Depositors Borrowers >20% 80%-85% Securities Dealers Money Market Funds Direct Instruments Markets (CP, Repo) >20% 80%-85% Government   ? ? <ul><li>Future Environment </li></ul><ul><ul><li>Features unknown </li></ul></ul>
  10. 10. Three Specific Items of Concern <ul><li>Limit money market fund commercial paper holdings to A1/P1 issuers </li></ul><ul><ul><li>Proposed by SEC </li></ul></ul><ul><ul><li>Comment period ended Sept. 8 </li></ul></ul><ul><li>Would reduce supply and increase cost of credit for all but a few top-rated borrowers </li></ul><ul><li>Key impact </li></ul><ul><ul><li>Utilities </li></ul></ul><ul><ul><li>Regional banks and their commercial customers </li></ul></ul><ul><ul><li>Food and beverage industry </li></ul></ul><ul><ul><li>Rust belt companies </li></ul></ul>
  11. 11. Three Specific Items of Concern <ul><li>Require money market funds to use a daily fluctuating net asset value </li></ul><ul><ul><li>Proposed in Obama “New Foundation” document </li></ul></ul><ul><ul><li>Referred to the President’s Working Group on Financial Markets </li></ul></ul><ul><ul><li>Recommendations expected Sept. 15 </li></ul></ul>
  12. 12. <ul><li>Regulation of OTC derivatives proposed by Treasury </li></ul><ul><ul><li>SEC and CFTC to regulate exchanges and clearing organizations </li></ul></ul><ul><ul><li>Distinguish standardized trades from customize trades </li></ul></ul><ul><ul><li>Margin, capital and/or collateral requirements (w/ exemptions) </li></ul></ul><ul><li>Benefits </li></ul><ul><ul><li>Reduced counterparty risk </li></ul></ul><ul><ul><li>Pricing transparency </li></ul></ul><ul><li>Negative impacts </li></ul><ul><ul><li>Increased hedging costs </li></ul></ul><ul><ul><ul><li>Capital, margin and/or collateral </li></ul></ul></ul><ul><ul><li>P&L volatility from imperfect hedges </li></ul></ul><ul><ul><li>FAS 133 issues, definitions </li></ul></ul><ul><ul><li>Liquidity </li></ul></ul><ul><ul><ul><li>Availability of counterparties </li></ul></ul></ul><ul><ul><ul><li>Position limit proposals </li></ul></ul></ul>Three Specific Items of Concern
  13. 13. Regulatory Change Impacting Treasurers <ul><li>It may be 5-7 years before market returns to equilibrium. </li></ul><ul><ul><li>Initial regulatory initiatives </li></ul></ul><ul><ul><ul><li>Each country; multiple agencies within each country </li></ul></ul></ul><ul><ul><li>International bodies attempt to harmonize </li></ul></ul><ul><ul><li>Regulatory competition </li></ul></ul><ul><ul><li>Everyone fine-tunes </li></ul></ul><ul><ul><li>New equilibrium </li></ul></ul>
  14. 14. <ul><li>New environment for Corporate Treasurers </li></ul><ul><ul><li>Higher cost of capital </li></ul></ul><ul><ul><li>Higher cost of credit </li></ul></ul><ul><ul><li>Higher cost of operating services </li></ul></ul><ul><ul><li>Higher cost of managing risk </li></ul></ul><ul><ul><li>Higher cost of compliance </li></ul></ul><ul><li>Fewer financial service options </li></ul><ul><ul><li>Fewer (and much larger) providers </li></ul></ul><ul><ul><li>Fewer available instruments </li></ul></ul><ul><ul><li>Less relationship leverage </li></ul></ul><ul><ul><li>Government allocation of liquidity </li></ul></ul>Preparing For The New (Post-Crisis) World
  15. 15. <ul><li>New Imperatives for Treasurers </li></ul><ul><ul><li>Solidify availability of credit </li></ul></ul><ul><ul><li>Shore up balance sheet, capital structures </li></ul></ul><ul><ul><li>Improve global cash visibility </li></ul></ul><ul><ul><li>Improve global risk visibility </li></ul></ul><ul><ul><li>Improve cash forecasting </li></ul></ul><ul><ul><li>Upgrade treasury technology </li></ul></ul><ul><ul><li>Become working capital efficient </li></ul></ul><ul><ul><li>Update investment guidelines </li></ul></ul>Preparing For The New (Post-Crisis) World
  16. 16. For More Information, Contact or Follow Us Anthony J. Carfang [email_address] Cathryn R. Gregg [email_address] www.TreasuryStrategies.com www.Twitter.com/TreasuryStrat 3 12-443-0840
  17. 17. About Treasury Strategies, Inc. Who We Are Treasury Strategies, Inc. is the leading treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions. What We Do Corporations We help you maximize worldwide treasury performance and navigate regulatory and payment system changes through a focus on best practices, technology, liquidity and controls. Financial Services Our experience, analytic approach and benchmarks provide unique consulting solutions to help you strengthen and grow your business. Treasury Technology We provide guidance through every step of the technology process. Our expert approach will uncover opportunities to optimize the value of your treasury through fully integrated technology solutions.

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