In-house banking (or internal central Treasury) typically consists of a dedicated function or entity which handles cash management, FX and funding operations on behalf of different business units within a corporation. In effect, each business unit maintains its own virtual 'bank account' with the in-house bank rather than directly with an external commercial bank.

1. IN-HOUSE BANKING
WHO NEEDS IT AND WHY?WHO NEEDS IT AND WHY?

2. What do we mean?
• In-house banking (or internal central Treasury)
typically consists of a dedicated function or
entity which handles cash management, FX
and funding operations on behalf of different
business units within a corporation. In effect,
each business unit maintains its own virtual
'bank account' with the in-house bank rather
than directly with an external commercial
bank.

3. What does it look like?
• The “in-house bank” houses these virtual bank
accounts in its own sub-ledgers.
• These are mapped to those actual bank accounts
maintained by the “in-house bank” with one or
more external banks.
• Payment and deposit transactions processed by
the “in-house” bank on behalf of a business unit
pass through the actual bank accounts
• These are then mapped to the virtual bank
account belonging to that business unit

4. Where’s the pick-up?
• The number of bank accounts a corporate needs to
maintain is dramatically reduced, resulting in
consolidation of liquidity, FX and investment positions.
• The “in-house” bank can net-off or self-fund its own
positions across different business units which
provides a commercially more efficient approach.
• Having visibility over all payment and deposit flows
also enables the “in-house bank” to forecast its net
funding or investment position more accurately,
thereby improving funding and investment operations.

5. When is it worth it?
• “In-house banks” are not the prime focus of new or
expanding corporations attacking international expansion.
• However as business expands, issues arise being
• A) The funding of working capital becomes more pressing
as maturing operations generate excess cash whereas
lesser developed operations require injections of new
funding to support growth.
• (B) Typically the balance sheet of the overall entity grows,
with some businesses having substantial cash balances
whilst others need to borrow.
• (C) The ability to efficiently move money between separate
business units and across different countries is constrained
by the lack of treasury resources and infrastructure

6. Where are the benefits arising?
• “In-house” banking structures offer a number of other
measureable benefits;
• (A) More efficient management of foreign exchange risk
and enhanced returns on surplus cash. These benefits can
be very substantial depending on the size of the business
• (B) The savings to be made on foreign exchange costs are
also significant in most cases.
• ( C) The clearest benefit is that an “in-house” bank
maximizes self funding given external loans required by
one business unit can be replaced by excess cash generated
by another business unit. Hence, the interest rate spread
between deposits rates and lending costs is no longer an
issue

7. What are the steps?
• Establishing a centralised Treasury. The first step in the
process is recognizing the need for a dedicated
treasury function, which can be established on either a
global and regional basis.
• Integration of Treasury and central functions. In
tandem with developing the treasury function,
integrate it with central processing functions such as
accounts payable and accounts receivable
• The fully integrated model: This is the 'true' “in-house
bank”. Under this model all collection and payment
data flows via the treasury or in-house bank accounts

8. Anything else?
• Knowledge –setting up these operations takes time and
experience so it may be worth while getting some technical
help as legal, accounting, tax, regulatory and systems support
• Technology Platforms—again many to choose from and the
key is planning properly for what is needed, selecting
carefully (site visits, references etc.) and above all
implementation
• Global Banking Platforms-- If the size merits it then the
platforms used by the external banks can help make the
above a lot easier so leverage where possible such as
consistency of MI, good reconciliation services and cross
border capabilities