This year’s Sibos covers a host of topics, from digital disruption to the perfect storm in payments, and from cyber resilience to the evolution of correspondent banking. As in previous years, the conference is proving to be a brilliant showcase of ideas and an inspiring talking shop ̶ with many of the discussions on the sidelines as animated and productive as those in the main auditoria.</p> One area of interest to all attending is managing liquidity ̶ the lifeblood of all businesses. Indeed, much of the work of bankers, techies and regulators centres on ensuring that businesses have sufficient accessible liquidity to run day-to-day operations.</p> Yet much has changed for corporate treasurers and chief financial officers over recent years. Today’s volatile financial environment has upturned so many old certainties that treasurers find themselves adopting portfolio management techniques even for their cash accounts. Nowadays, they need to combine a high-level view of their group’s cash flows with detailed foresight of temporary cash shortages and excesses, and a taste for hunting down alternative types of investment.</p> New challenges to efficient liquidity management</h3> One factor to which treasurers now have to pay increasing attention may perhaps come as a surprise: banking regulation. Inadvertently, this is significantly impacting corporates’ liquidity. Basel III is one example. The capital regulation requires banks to hold a prescribed percentage of High Quality Liquid Assets (HQLAs) ‒ convertible into cash within a day without loss of value ̶ against assets the regulator assumes will flow out in a 30-day stress event. This Liquidity Coverage Ratio is currently 70% in the EU and 90% in the US, but rises to 100% next year in the US, and in 2019 in the EU.</p> This is why banks now prefer, and offer better yields on, cash flowing from corporates’ day-to-day operations as it has a lower outflow factor than say investment cash.</p> Another major force affecting liquidity is interest rates. The new phenomenon of negative rates was initially relevant only to banks depositing funds with central banks having set negative base rates (a growing number, most notably the European Central Bank and the Bank of Japan). However, some banks have started passing on the charges they now pay for their overnight deposits to their business customers, so deposits may actually cost rather than earn corporates money.</p> Strategies</h3> What solutions are there to manage these new drivers?</p> A first step is ensuring optimum visibility of cash flows. Simple as it sounds, improving the accuracy of cash flow reporting and forecasting invariably uncovers hidden opportunities to manage liquidity more efficiently. Technology is constantly making views more comprehensive, more detailed, and closer to real-time. Even more importantly, tools now provide customised analysis of ever-richer data, uncovering hidden patterns to enable more accurate predictions.</p> Next, for multinational companies, centralised control of payments and receivables may enable greater oversight over working capital and more strategic management of global cash resources, maximising interest across a group. Also, cash pooling may optimise group funding and minimise costs.</p> Foreign exchange exposure is another area of focus. When operating in emerging markets with potentially volatile currencies, hedging is an option, yet traditional hedging instruments (forwards or cross-currency swaps) can prove expensive through the high cost of carry, given local interest rates. Therefore, using collar-based, rolling short-term hedges and preset collar strikes at trade inception may be an alternative, locking in all market parameters including liquidity and market levels, to a given maturity.</p> However, hedging is just part of good cash management. Nowadays this can concentrate cross-currency collections and payments into a single operating currency account funding all payments, while paying beneficiaries in their local currencies, retaining control of all conversions. Finally, there needs to be a re-think regarding investment ̶ making it more creative, albeit the corporate investment policy may need revising to incorporate a wider range of ̶ as well as longer-term ̶ investments than traditional. All types should be considered, old ones that are newly useful, and new ones developed in response to changed regulatory and macro-economic parameters ̶ from money market funds to call, term or rolling time deposits for 60 or 90 days for improved yields, to agency reverse repos.</p> One thing is sure: managing liquidity requires nimbleness and flexibility. Treasurers will continue to require the resources of both banks and technology providers to improve data quality, hone predictions, improve decision-making and draw on the widest possible range of investments. </p>