1. The 2012 guide to
September2012
Published in conjunction with:
J.P. Morgan
RBS
SEB
Standard Chartered Bank
Liquidity
Management
OFC_2012.indd 1 06/09/2012 15:03

2. J.P. Morgan - Euromoney - Advert.pdf 1 06/09/2012 14:05

3. Looking to the long term 2
Faced with an unusually broad and persistent range of challenges,
treasurers are looking for sustainable solutions
Moving to the next level in liquidity 4
management
SEB
Liquidity Management Survey 2012 6
Liquidity management: Managing the risks 8
Standard Chartered Bank
Is your treasury ready for the new 12
global rules?
J.P. Morgan
Contents
This guide is for the use of professionals only. It states the position of the
market as at the time of going to press and is not a substitute for detailed local
knowledge.
Euromoney Trading Limited
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Telephone: +44 20 7779 8888
Facsimile: +44 20 7779 8739 / 8345
Directors: Padraic Fallon (chairman and editor-in-chief), Sir Patrick Sergeant,
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Gonzalez, Jane Wilkinson, Martin Morgan, David Pritchard, Bashar Al-Rehany
Editor: Philip Ayres
Director of research guides: Soledad Contreras
Journalist: Laurence Neville
Cover illustration: Daniel Palmer
Printed in the United Kingdom by Wyndeham Group
© Euromoney Trading Limited 2012
Euromoney is registered as a trademark in the United States and the United
Kingdom.
210x286Contents.indd 1 05/09/2012 15:47

4. Liquidity Management Survey
2012: looking to the long term
Faced with an unusually broad and persistent range of challenges, treasurers are looking for
sustainable solutions. By Laurence Neville
Liquidity management has never been more important. Four years on
from the onset of the financial crisis, treasurers continue to intensify their
efforts to improve the flow of liquidity across their corporate structures.
Meanwhile, the ongoing and seemingly intractable debt crisis in the
eurozone – and the threat to the euro itself – has added to treasurers’
headaches in managing counterparty risk.
Working capital, funding requirements and the ability to react to eco-
nomic and political developments – and continue to function in spite of
them – are companies’main concerns. As Lisa Rossi, global head of liquid-
ity management at Deutsche Bank, notes, this has widened the breadth of
treasurers’once chiefly functional roles and forced them not only to think
more strategically, but also to find solutions that enable them to do more
with less across their organizations.
As further constraints are placed on resources, the management of time,
costs, budgets and human capital is requiring the use of technology to
enhance and promote operational efficiencies.“Fortunately, technology
has become generally cheaper and more readily available, as well as being
easier to apply,”notes Willem Dokkum, global head of sales payments
and cash management at ING. Indeed, advances in technology are ac-
celerating, according to most bankers interviewed for this article, and are
delivering practical benefits in the forms of increased transparency and
control over working capital and liquidity.“It means organizations are able
to better manage risk and maximize internal funding across time zones,
currencies and numerous banking relationships,”adds Rossi.
Practical steps
The economic and financial environment has necessarily prompted
treasurers to make changes to how their departments operate. However,
Yera Hagopian, liquidity solutions executive, treasury services EMEA, at JP
Morgan, says the broad range of challenges facing treasurers – an even
deeper and more sustained period of low interest rates and a number of
economic tremors ranging from sovereign downgrades to the threat of
eurozone member exits – has prompted treasurers to take a longer-term
view.“Corporates are looking for sustainable approaches to address their
liquidity management challenges rather than a series of knee-jerk reac-
tions,”she notes.
In practical terms, corporates are aiming to achieve broadly the same goals
they have pursued for the past few decades – only more effectively.“Cli-
ents are increasingly looking to manage their liquidity risks more tightly,
and take control of unproductive surplus cash within the organization as
they seek more efficient means to channel the funding of their working
capital needs,”explains Martijn Stocker, global head, liquidity manage-
ment, transaction banking, at Standard Chartered.“Therefore, there has
been a greater demand for more diverse capabilities in liquidity manage-
ment products as clients’needs grow.”
However, as trade flows evolve – with emerging markets becoming
relatively more important to the global economy – the range of challenges
that liquidity management must address is also changing.“One of the
key trends in the market today is the increasing demand and complexity
of liquidity management as companies expand beyond their home or
current operating sphere,”says Elyse Weiner, global head, liquidity and
investments, at Citi.
Even companies formerly considered best in class are revisiting their
processes to take advantage of new technologies and, in some situations,
deregulation, according to Weiner.“In the midst of a succession of financial
crises, now primarily centred on the eurozone, risk management is top
of mind with treasurers as they consider ways to mitigate both funding
and supply chain risk through rationalization of bank relationships and
accounts and re-engineering of operational processes, and trade finance
options. There is a laser-like focus on de-risking the business and contin-
gency planning.”
The 2012 Liquidity Management Survey
A total of 16 banks participated in Euromoney’s 2012 survey, the seven
global network banks plus nine leading cash management banks: Bank of
America Merrill Lynch, Barclays, BNP Paribas, Citi, Commerzbank, Deutsche
Bank, HSBC, ING, JP Morgan, KBC, RBS, Santander, SEB, Société Générale,
Standard Chartered and UniCredit. Each bank completed a questionnaire
covering its cash position reporting services, liquidity management infra-
structure, sweeping and cash pooling services, investment services and
liquidity management support (see table 1).
Cash position reporting
The strained financial environment continues to highlight the importance
of using existing cash from the business more effectively. The growing
corporate use of Swift reflects this trend: it had around 900 corporate users
at the end of 2011 and has an ambitious goal of 5,000 corporate users by
2015.
As a result of difficult financial conditions, cash position reporting has as-
sumed greater importance and forecasting has become a paramount con-
Laurence_V3.indd 2 05/09/2012 15:50

5. LIQUIDITYMANAGEMENTSURVEY2012•Lookingtothelongterm
3
cern for treasurers: unless they know where cash is, they cannot deploy
it effectively.“There is a growing emphasis on accurate cash forecasting
and in-depth reporting to enable treasurers to do their job even more
effectively than before,”says Dokkum at ING.
Weiner at Citi agrees:“The ability to visualize, mobilize and optimize
cash throughout the organization is a prerequisite to improved funding
efficiency, full utilization of internal cash assets and improved invest-
ment returns,”she says.“In addition, transparency is key to governance of
corporate policy, ensuring operating subsidiaries are compliant and oper-
ating in a risk-aware manner. As companies expand globally, maintaining
control is becoming more challenging. [Equally], newly acquired compa-
nies may be operating on disparate platforms for some time before they
can be fully integrated.”
At many banks, improving visibility of cash for clients has been a priority
for transaction banking investment.“We have continued to invest in prod-
ucts and solutions [to facilitate] ever increasing visibility of cash,”explains
Jan Rottiers, head of liquidity management products at BNP Paribas.“We
are delivering enhanced visibility and forecasting functionality within the
liquidity management module of our electronic channels.”
All the banks participating in the survey now provide end-of-day reports
from their own branches. As in previous surveys, Citi has the largest
number of own bank branch countries reporting (101) with HSBC second
at 71 – both have added a single country since last year. Ten of the banks
– compared to eight last year – provide services to monitor and chase
missing reports. All of the banks provide some intra-day reporting of
transactions.
Liquidity management infrastructure
Only half of the participating banks offer a single account for all cash
management and only 10 provide pooling on the same liquidity manage-
ment platform for all regions – although JP Morgan does now have all
locations except the US on a single international platform.
Opinions on the benefits of a single global platform are divided.“In-
creasingly, clients are moving to managing a global liquidity position,”
explains Thomas Schickler, global head of liquidity, global payments and
cash management at HSBC.“This makes it important for them to have a
consistency of service across the markets in which they operate but, most
importantly, it ensures robust connectivity between the developed and
developing markets.”
Electronics giant centralizes liquidity into regional hub
One of the world’s largest global electronics companies wanted to
consolidate its Asia Pacific liquidity position for multiple currencies
from multiple entities and countries into its regional treasury centre in
Singapore on a daily basis. The company’s goals were to ensure regional
visibility of daily liquidity, fund regional daily payment needs and build
on its existing structure with minimum disruption to daily business. The
use of multiple currencies and multiple accounts for multiple entities –
with many different banks – made a solution challenging.
Bank of America Merrill Lynch worked with the electronics company to
leverage its existing liquidity management structures and layer a multi-
currency notional pool on top of the existing structures. This solution
combined a hybrid of domestic sweeps, a single currency notional pool,
cross-border sweeps and a multi-currency notional pool.
The solution successfully consolidates the company’s Asia Pacific liquid-
ity into its in-house bank. Moreover, it maximizes the yield on surplus
daily cash in different currencies in different countries and in different
entities and offers real-time visibility on balances.
Bank of America Merrill Lynch’s solution addressed the challenges of
managing the cash flow mismatches that result from multiple entities in
multiple currencies. An entity makes an ad-hoc local currency payment
within the multi-currency notional pool: the Singapore-based treasurer
only executes FX conversions periodically to hedge the position. The
solution combines two multi-currency notional pools with cross-border
sweeps. Liquidity is maintained in each account to meet global working
capital requirements in both locations and transparency and reporting
for all bank accounts is delivered on a real-time basis.
As a result of the solution, the electronics company has consolidated
multiple currencies to achieve a net notional position.
Entity 1
BAML SG
USD
Entity 1
BAML SG
EUR
Entity 1
BAML SG
SGD
Entity 1
BAML SG
GBP
Resident A/Cs
Non-resident A/Cs
(foreign currency)
Entity 2
BAML SG
SGD
Entity 3
BAML SG
NZD
Entity 4
BAML SG
EUR
Entity 6
BAML SG
EUR
Entity 2
BAML SG
HKD
Entity 3
BAML SG
AUD
Entity 5
BAML SG
GBP
Entity 2
BAML SG
EUR
Non-resident A/Cs
(USD)
Entity 3
BAML SG
USD
Entity 10
BAML SG
EUR
Entity 4
BAML SG
SGD
Entity 10
BAML SG
GBP
Entity 7
BAML SG
USD
Entity 8
BAML SG
EUR
Entity 2
BAML SG
SGD
Entity 6
BAML SG
GBP
Entity 9
BAML SG
GBP
Balances notionally converted to USD into header A/C
MCNP
Header A/C
USD
Entity 2
BAML HK
HKD
Cross-border sweep
Entity 1
A/C 1
Entity 1
A/C 2
Entity 1
A/C 1 Dom
estic sw
eep
Domestic sweep
Entity 1
A/C 1
Domestic sweep
Entity 1
A/C 1
Domestic sweep
Entity 1
A/C 1
Domestic sweep
Entity 7
Asia restricted
country
Entity 8
Asia restricted
country
Entity 2
BAML HK
Entity 6
Asia restricted
country
Cross-border sweep
Cross-border sweep
Cross-border sweep
Cross-border sweep
Asia-Pacific liquidity consolidated to in-house bank
Source: Bank of America Merrill Lynch
Laurence_V3.indd 3 05/09/2012 15:50

6. Moving to the next level in
liquidity management
Having centralized liquidity, the next priority for treasurers is to quantify how much liquidity the
company actually needs, and how to minimize the costs and risks associated with managing it. By
Robert Pehrson, global head of product management (corporate segment), and Patrik Bergström,
financial strategy, client relationship management, SEB Merchant Banking
Over the past couple of years, treasurers and finance managers have
proved very successful in leveraging cash concentration and notional
pooling structures to optimize access to liquidity both regionally and
globally. In most cases, large multinationals now have solutions in place
to enable the efficient concentration of liquidity, cost-effective internal
financing and the best use of cash resources. Having centralized liquidity,
the next priority for treasurers is to quantify how much liquidity the com-
pany actually needs, and how to minimize the costs and risks associated
with managing it.
Prioritizing liquidity
There are a variety of reasons why liquidity has become such a significant
area of focus, both operationally, making sure that cash is available for
use across the business and, strategically, in terms of managing balance
sheet and counterparty risk. The first factor is the scarcity of liquidity in the
market, particularly for lower-rated companies. This situation has existed
since 2008 and with ongoing volatility, a lack of market confidence and
tightening regulations, the availability of liquidity is unlikely to increase.
Interest spreads have increased, while interest rates are very low, and even
negative in some currencies, such as DKK and CHF. In addition, certain
types of corporate deposits are less attractive for banks compared with
retail deposits, further depressing returns available to corporate investors.
While these factors are all significant in elevating the importance of liquid-
ity management, perhaps the most important issue of all is liquidity risk,
which was rarely mentioned five years ago. Volatile markets, such as in the
Eurozone, combined with uncertainty over banks’interpretation of Basel
III, mean that treasurers can no longer be complacent about where their
funding will come from in the future. This is resulting in corporates seek-
ing alternative forms of funding, such as accessing the markets directly
through corporate bond and commercial paper issuance, as opposed to
relying on bank funding. In addition, they are increasingly leveraging their
financial assets both to fund working capital requirements and manage
liquidity risk, such as receivables financing and supply chain financing.
Six steps to strategic liquidity management
Liquidity optimization does not simply involve accessing as much cash as
possible, however, it requires a careful assessment of how much liquidity
is available, how much is required and therefore how much cash can
be invested more strategically. Treasurers need to balance the need to
maximize net interest income whilst continuing to support the business in
the best way.
1. How much liquidity do we have?
A corporation’s liquidity position comprises more than the cash held
in bank accounts, short-term investments and unutilized committed
credit facilities. Treasurers need to establish a deep understanding of
the company’s cash flows (figure 1) and how these are likely to change
over a 12- to 24-month time horizon. They also need to have a clear view
of the proportion of this cash that is trapped in entities and accounts in
regulated jurisdictions, or as cash collateral tied to long-term credit or
derivative agreements.
2. How much liquidity do we need?
This is a question that few treasurers have explored in the past, partly as
the‘right’answer will be different for every company. A corporation needs
enough liquidity to cover for the future cash outflows in the form of mini-
mum capital expenditures, working capital at its highest seasonal point,
committed dividend payments and short-term debt maturities. Calculat-
ing working capital needs should be relatively straightforward by taking
a holistic approach to the financial supply chain. Other factors are specific
to each industry and each company, such as external rating requirements
and targets, cash flow risk and volatility, equity analysts’view of cash
holdings, cash flow risk and volatility, corporate investment strategy and
benchmarking with industry companies. Spending time in this area can
be highly advantageous, giving treasurers and finance managers greater
confidence in the company’s ability to channel cash into strategic business
investments that will bring long-term value to the business and enhance
competitiveness.
3. How should we hold our liquidity?
As figure 1 illustrates, companies can hold and generate liquidity in
different ways: funds from operations; excess cash in bank accounts and
financial instruments, and in the form of committed facilities from bank-
Funds from
operations
Excess cash
Committed facilities
CapEx
Working capital
Dividends
Short-term debt
maturities
1x
Minimum
?x
5. What should we do with
surplus cash?
4. Who will provide
liquidity?
3. How should we hold our
liquidity?
2. How much liquidity do we need?
1. How much liquidity do we have?
6. How should we manage the
associated risks?
Sources of liquidity Uses of liquidity
Figure 1: Key questions in liquidity management
Source: SEB
SEB_Liquidity_to print.indd 4 05/09/2012 15:52

7. 5
JPMorgan•Isyourtreasuryreadyforthenewglobalrules?
ing partners. Again, there is no‘right’way to hold cash as it will differ by
industry and individual company. In making the decision treasurers should
balance costs and benefits for holding liquidity. Key areas in this respect
include: cash flow dynamics; future potential investment opportunities; li-
quidity risk (eg, reliability of long-term bank financing); the cost of facilities
and interest rates obtainable in the market. Ongoing market volatility also
means that this is a question treasurers should revisit regularly.
4. Who will provide liquidity?
Related to the previous question, treasurers should identify the most reli-
able sources of liquidity, which could be internal funding, banks, financial
markets, suppliers and/or customers. As we have established previously,
liquidity risk can come in a variety of forms, requiring a multi-faceted
risk management approach. For example, we have noted the trend for
corporate bond issuance, but also alternative sources of financing such as
receivables financing and supply chain financing, leveraging companies’
own financial assets as sources of liquidity. Again, as the business evolves,
and the shape of the financial supply chain shifts, the liquidity solutions
that are optimal for a particular company are likely to change over time.
5. What should we do with surplus cash?
Working through the previous questions will give treasurers a clear view
about short-, medium- and long-term cash requirements, and the liquidity
buffer that is required to mitigate risk. Treasurers can therefore divide their
cash between operating cash that is required in the short term, and cash
that can be invested for a longer period. During the early months of the
global financial crisis, we saw a flight to liquidity, with companies placing
large amounts of cash in short-term instruments. Low interest rates and
enhanced counterparty risk management techniques are now motivat-
ing treasurers to invest their cash more strategically to enhance yield. This
issue has become further accentuated with the introduction of Basel III, as
banks value some types of deposit more than others. Treasurers who have
undertaken detailed calculations and scenario analysis to understand their
liquidity needs will have more confidence in seeking the most favourable
deposit terms and counterparties.
6. How should we manage the associated risks?
We have mentioned liquidity risk, which is a key factor in deciding on the
tenor of investments, but other forms of risk, such as counterparty and
sovereign risk, are also key decision criteria. One way of managing these
risks is to diversify investments across counterparties, tenors, instrument
types and locations, and leverage inherently diversified instruments such
as money market funds. In addition, risks related to the supply chain need
to be managed.
Managing complexity
The outcome of a more strategic approach to liquidity management is a
greater appreciation of the complexity of the financial value network of
which banks, bondholders, shareholders, suppliers and customers are all
a part (figure 2). All of these stakeholders need to be considered as part of
an integrated liquidity management strategy, as each brings various risks
and opportunities in liquidity terms. This means that any decision that
affects liquidity, such as sourcing funds through a syndicated loan, or ex-
tending payment terms to suppliers, needs to be considered in terms of its
overall implications on liquidity risk. Consequently, a portfolio approach to
liquidity, including a variety of financing sources, such as committed and
uncommitted facilities, direct issuance, trade finance and working capital
financing, combined with a diversified approach to investment, is typically
the most successful.
A portfolio approach to liquidity is inevitably more complex than a
straightforward syndicated facility, so companies are turning to banks to
simplify and streamline the way that these various techniques are man-
aged. For example, with a financial value network that is likely to be large,
diverse and extend over multiple continents, it is important to standard-
ize the way in which this community exchanges information. This has led
to the development and increasing adoption of XML-based standards,
such as ISO 20022 for financial messaging. In addition, corporates are
increasingly making use of bank-agnostic, multi-bank connectivity chan-
nels such as SWIFTNet for corporate-to-bank communication, and global
platforms for programmes such as receivables financing to streamline
global processes.
Another way of simplifying the financial value network is to rationalize
the number of stakeholders within it. In some cases, it may be beneficial
to reduce the total number of suppliers, for example, to manage supplier
risk and create economies of scale. In addition, many multinational corpo-
rations are rationalizing their bank relationships, and appointing regional
banks that demonstrate best-in-class capabilities. This reduces counter-
party risk, streamlines processes and also helps to mitigate liquidity risk
by establishing reciprocal value relationships with banks that provide
financing.
Working with the right bank that has a clear appreciation of the liquidity
considerations that exist within the company, and an understanding of
the wider industry dynamics, is essential. In doing so, treasurers and their
banking peers can work together to build an optimized working capital
and long-term finance model that reflects the current funding market
and future regulatory changes, and enhances the company’s competitive
position.
5
For further information, please contact
Robert Pehrson
global head of product management (corporate segment),
SEB Merchant Banking
+46 (0)8 763 8786
Patrik Bergström
financial strategy, client relationship management,
SEB Merchant Banking
+46 (0)8 763 8794
http://merchantbanking.sebgroup.com/our-services/transactions/
SEB•Movingtothenextlevelinliquiditymanagement
1
Treasury
Purchasing
Accounts
payable
Accounts
receivable
Local
business
units
Bank
Supplier
Customer Financial
systems
vendor
External
Value
Network
Internal
Value
Network
Risk
assessment
provider
Figure 2: The financial value network
Source: SEB
SEB_Liquidity_to print.indd 5 07/09/2012 14:40

8. Bank Name Bank of America
Merrill Lynch
Barclays BNP PARIBAS Citibank Commerzbank AG Deutsche Bank
Cash Position Reporting
Intra-day reporting of transactions: How many own bank branch countries reporting? 25 7 60 101 20 34
AreThird Party Banks' transactions accepted and processed? : Yes Yes Yes Yes Yes Yes
End Of Day Reports: How many own bank branch countries reporting? 25 21 60 101 20 35
Are thereThird Party report monitoring & chasing services? Yes No Yes Yes Yes No
Is there real-time reporting of account balances? Yes No Yes Yes Yes Yes
What reporting channels are used? (SWIFT, Online Portal, Email, Other - if other, please indicate) SWIFT, Online Portal,
Email, Other
SWIFT / Internet SWIFT, Online Portal,
Other
SWIFT, Online Portal,
Email, Other
SWIFT, Online Portal,
Other
SWIFT, Online Portal,
Email
What is the level of liquidity forecasting service functionality? Medium None None Medium Comprehensive Medium
Liquidity Management Infrastructure
Do you provide a single global DDA for all cash management? Yes No No No Yes No
Do you provide pooling on the same liquidity management platform for all regions? Yes No Yes Yes Yes No
Sweeping and Pooling Services
Header/MasterAccountLocations
Single Currency Pool (No. of countries): - physical 37 7 30 69 16 35
- notional 36 2 19 11 14 29
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
Multi-Currency Notional Pool: Asia-Pacific: 12 44 0 0 0 0 2 9 2 11 14 16
Europe: 21 44 1 15 19 23 1 23 13 11 14 50
Latin America: 2 44 0 0 0 0 0 0 0 0 1 1
NAFTA: 2 44 0 0 0 0 0 0 1 11 1 4
Middle East & Africa: 0 0 0 0 0 0 0 0 0 0 0 0
Cross-BorderSweepingBetweenOwnBranches
End Of Day Sweeps: No. of countries where sweep can be last transaction*
of day:
37 6 26 40 16 35
Automated back-values for transactions with previous value date Yes No Yes Yes Yes Yes
Overnight return sweeps Yes Yes Yes Yes No Yes
Intra-day sweeps within cut-off times: - No. of countries 36 6 30 43 16 18
- How swept: Automated Manual / Automated Automated Automated Automated Automated
- How sweeps triggered: By Balance &/OrTime By Balance By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime
Cross-BorderMulti-BankSweeping
No. of existing MT 101 agreements: 100-199 200+ 200+ 200+ 200+ 50-99
Target End Of Day Sweeps - No. of countries: 36 32 29 38 25 26
- How swept: Automated Manual / automated Automated Automated Automated Automated
- How sweep triggered: By Balance &/OrTime By Balance By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime
Cross-border, cross-currency sweeping with auto FX-conversion Yes No No Yes Yes No
Intra-day sweeps: - No. of countries: 36 0 29 Unlimited 25 14
- How swept: Automated N/A Automated Manual/Automated Automated Automated
- How sweep triggered: By Balance &/OrTime N/A By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime
NotionalPoolingServices
Single Country (all accounts in same country)
Single Currency - Full off set (No. of countries): 35 3 6 11 14 14
% optimisation (No. of countries): 36 0 19 25 14 29
Multi-Currency - Full off set (No. of countries): 35 1 6 3 14 3
% optimisation (No. of countries): 36 0 19 25 14 29
No. of pooling currencies supported 44 15 23 25 10 50
Multi-Country (leave funds in each country)
Single Currency - % optimisation (No. of countries): 36 0 19 25 14 29
Multi-Currency - % optimisation (No. of countries): 36 0 19 25 14 29
No. of pooling currencies supported 44 0 23 26 10 50
Investment of Excess Cash
Bank Risk Profile: Credit rating of bank (S&P or Moody rating): S&P BANA A A2 AA- A-1 A/A-1 Moodys A2/S+P A+
Tier One Capital Ratio (%) 10.78% 10.90% 12.20% 14.4% 12.30% 12.90%
Investment Options: No. of currencies accepted for cash investments 44 40 4 19 11 26
Money Market Funds No. of funds - freely
negotiable currencies
0 12 158 4 26
No. of funds - restricted currencies 0 Yes 0 0 0 0
Investment Channels: Dedicated Investment Desk Yes Yes Yes Yes Yes Yes
On-line Portal: - provided Yes Yes Yes Yes Yes Yes
- instruments available Bank & third party
instruments
Bank only instrument Bank & third party
instruments
Bank & third party
instruments
Only bank
instruments
Bank & third party
instruments
To Money Market Funds - automated sweeps to Yes No No Yes No Yes
- automated redemptions from Yes No No Yes No Yes
To Other Instruments - automated sweeps to Yes No Yes Yes No Yes
- automated redemptions from Yes No Yes Yes No Yes
Liquidity Management Support
Dedicated operational and customer support: Yes Yes Yes Yes Yes Yes
Liquidity models for client's private use - Analysis of cost of holding cash: Yes No No Yes No No
Showing impact of new structures: No No No Yes No No
Contact Information
Contact Name: Greg Kavanaugh Andy Rudge Jan Rottiers ElyseWeiner Jasmin Maraslioglu Matthew Sagat
Country: United States United Kingdom Belgium United States Germany United States
Telephone Number: +1 312 904 8123 +44 7826 945146 +322 565 00 82 +1 212 816 0470 +49 136 46966 +1 212 250 5312
Email Address: greg.kavanaugh@
baml.com
andrew.rudge@
barclaysc.com
jan.rottiers@
bnpparibasfortis.com
elyse.weiner@
citi.com
jasmin.maraslioglu@
commerzbank.com
matthew.sagat@
db.com
Notes:*=exceptforinvestment
Source:Cashmanagementbanks.Copyright©2012Euromoney
Table 1 - Euromoney 2012 Liquidity Management Survey

9. e Bank HSBC ING bank J.P. Morgan KBC RBS Santander SEB Standard Chartered
Bank
Societe Generale UniCredit Bank
71 21 28 9 42 7 14 48 19 16
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
71 21 28 9 42 7 16 48 57 21
Yes Yes No Yes No Yes Yes No No Yes
Yes Yes Yes Yes Yes Yes Yes Yes No Yes
ne Portal,
il
SWIFT, Online Portal,
Email and other (host
to host connection)
SWIFT, Online Portal,
Other
SWIFT, Online
portal, Host-to-Host
connection
SWIFT, Online SWIFT, Online Portal,
Other
SWIFT, Online portals,
Other
SWIFT, Online Portal,
Email, Other
SWIFT, Email, Online
Portal
SWIFT, Online portals,
Other
SWIFT, Online Portal,
Other
um Medium, BTR
reporting and links to
client ERP systems
Comprehensive Comprehensive Medium Balance & transaction
reporting can be
exported into liquidity
forecasting systems
None Comprehensive None Little Medium
Yes Yes No No Yes Yes No Yes Yes No
Yes No All locations except
the US are on a single
international platform
No Yes Yes Yes Yes Yes No
51 10 27 9 35 2 15 48 29 16
30 28 6 9 16 2 11 48 16 14
No.of
urrencies
No.ofSites No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
No.of
Sites
No.of
Currencies
16 10 26 0 0 2 sites; 13 currencies 0 0 2 29 1 45 19 50 0 0 0 0
50 4 50 1 location; 43
currencies
1 site; 24 currencies 9 50 2 29 9 45 2 50 1 country, 5 currencies 12 14
1 2 14 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
4 1 18 0 0 0 0 0 0 0 0 1 45 1 50 0 0 0 0
0 5 10 0 0 0 0 0 0 0 0 0 0 18 50 0 0 0 0
19 28 20 9 23 7 8 48 19 13
Yes Yes Yes Yes Yes Yes No Yes Yes Yes
Yes No Yes No Yes No Yes Yes No Yes
30 28 25 9 35 6 11 48 16 13
ated Automated Automated Automated Both Automated Automated Automated Automated Automated Both
/OrTime By Balance &/OrTime ByTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime
9 200+ 200+ Circa 1000 200+ 400+ >50 100-199 100-199 380 200+
18 28 0 9 0 21 19 48 15 13
ated Automated Manual/Automated NA Both NA Automated Automated Automated Automated Both
/OrTime By Balance &/OrTime By Balance NA By Balance &/OrTime NA By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime
Yes Yes Yes No Yes No No
8 28 0 9 88 No 19 48 11 0
ated Automated Manual/Automated NA Both Fully Automated Automated Automated Automated
/OrTime By Balance &/OrTime By Balance &/OrTime NA By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime By Balance &/OrTime
20 2 6 9 16 11 18 16 14
30 2 1 9 5 2 11 40 0 14
10 43 3 9 4 11 1 0 0
22 43 1 9 5 2 11 40 1 0
50 28 24 50 29 1 45 50 5 0
53 15 13 9 35 12 40 0 0
53 9 13 0 35 12 40 0 0
50 4 17 50 29 45 50 0 0
/S+P A+ A+ on HSBC Holdings
plc
Moody's A3, S&P A A (S&P) A3 stable A (S&P) S&P: A- A+ AA- (S&P) A S&P & A2 Moodys Moody: A3
% 10.40% 9.2% 10.4% 12.30% 10.80% 9.00% 16% 13.70% 9.4% 10.9%
50 12 28 50 30 21 23 50 50 50
5 3 64 0 20 21 10 3 0 50
4 0 0 0 0 0 0 0 0 0
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
d party
ents
Bank only instruments Bank only instruments Bank & third party
instruments
Only bank instruments Bank & third party
instruments
Bank only instruments Bank & third party
instruments
Only bank instruments Bank & third party
instruments
Bank & third party
instruments
Yes No Yes No No No No Yes No Yes
Yes No Yes No No No No No No Yes
Yes Yes Yes No Yes No Yes Yes No No
Yes Yes Yes No Yes No Yes Yes No No
Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Yes No No Yes Yes No No Yes No No
Yes No No Yes Yes No Yes Yes No No
Sagat Alkie Gan Willem Dokkum Clyde Muir Kristiaan Probst Rachel Kerrone Jose Luis Calderon Robert Pehrson Martijn Stoker SophieTarralle Markus Straußfeld
tates Hong Kong Netherlands United Kingdom Belgium United Kingdom Spain Sweden Singapore France Germany
0 5312 +852 2822 4062 +31 206523300 +44 207 134 4950 +32 2429 7925 +44 207678 3814 +34 91 289 4329 +46 705158786 +65 964189 +33142144284 +49 211 89 86 780
agat@
m
alkiehkgan@
hsbc.com.hk
willem.dokkum@
ing.nl
clyde.e.muir@
jpmchase.com
kristiann.probst@
kbc.de
rachel.kerrone@
rbs.com
josecalderon@
gruposantander.com
robert.pehrson@
seb.se
martijn.stoker@
sc.com
sophie.tarralle@
socgen.com
markus.straussfeld@
unicreditgroup.de
2012GUIDETOLIQUIDITYMANAGEMENT
7
Table Daniel 280812.indd 7 05/09/2012 15:54

10. Liquidity management:
Managing the risks
Corporate treasurers and their bank counterparts are starting to employ similar strategies in dealing
with liquidity risk. Both have learned valuable lessons over the past few years, and now it’s time to
put them to good use. by Martijn Stoker, Director, Global Head Liquidity Management, Transaction
Banking, at Standard Chartered Bank
Liquidity risk management can be seen as two sides of the same coin.
Increasingly, the needs of both banks and corporates are converging as
liquidity is the life blood for the survival of both. Developing an effective
risk governance structure involves measuring your organization’s risk
appetite, defining strategies to limit these risks and testing the efficacy of
your oversight measures. All of this will need to be supported by the right
systems and procedures.
Corporate treasury is rapidly evolving from a task-based department into
the financial‘nerve’centre of the organization. At the same time, treasurers
at corporates and banks are becoming more and more aligned in terms of
risk management practices, as both need to be fully aware of the impact of
liquidity risks on their business activities.
Invisible risk
The collapses of Northern Rock and Bear Stearns prove that profitability
and capital are no defence against liquidity risk. Both made profits in the
quarter before they defaulted and both were well-capitalized businesses.
And yet, as a result of their failure to deal with their liquidity risk issues,
they vanished. The fact is, no one talked much about liquidity risk and as a
result, liquidity was largely an invisible risk for many firms.
Corporate treasurers and their bank counterparts are starting to employ
similar strategies in dealing with liquidity risk. Both have learned valuable
lessons over the past few years, and now it’s time to put them to good use.
We see that‘best in class’treasury organizations are outpacing their peers
by addressing the following items in a structured manner:
1. Cash management fundamentals
n Cash visibility;
n Cash management;
n Liquidity management tools;
n Cash deployment.
2. Liquidity risk analytics
n Cash forecasting;
n Liquidity stress-testing.
3. Liquidity risk management
n Benchmarking your liquidity risk;
n Execution to limit liquidity risk.
Cash management fundamentals
Cash visibility
Effective cash management has been a key priority for the corporate
treasury over the past few years and this obviously starts with full visibility
on the organization’s worldwide cash positions. This requires access to a
system that provides you with timely and accurate information on all your
cash positions, preferably on a real-time basis. It includes insights into
balance levels, transactions within the clearing cycle and capital trapped in
your supply chain. If you can see it you, can manage it.
Cash management
This is basically about gaining full control over your cash flows. The pay-
ments and collection processes are like the arteries through which the
blood (liquidity) of the company flows, so ensuring‘best of class’practices
are used in each country is critical. Full control to move funds (internally
and externally) also requires a clear access authorization process – without
it you might have visibility but you are still unable to manage the cash
effectively. With this control in place the organization is able to take a well-
founded short-term funding or investment decisions.
Liquidity management tools
A key part of the fundamentals are the various tools that help free up
internal liquidity. Besides the basic‘leading and lagging’of their collections
and payments there are also others tools such as;
n Supply chain finance solutions – such as receivable services, bill dis-
counting, vendor pre-payment services and an efficient collateral manage-
ment service – will free up internal liquidity that would otherwise be stuck
in a company’s supply chain.
n Physical sweeping and notional pooling are tools that allow a company
to automatically concentrate and utilize operating cash positions across
different entities and locations. This can be either in a domestic or cross-
border structure within a single currency or in multiple currencies.
Cash deployment
Treasuries that have complete global visibility of their cash positions,
effective control mechanisms in place and utilize the right liquidity tools
Risk
analytics
Risk
management
Treasury management fundamentals
- cash visibility
- cash management
- liquidity management tools
- cash forecasting
- liquidity stress testing
- benchmark liquidity risk
- execution to limit risk
Liquidity manangement risk
Source: Standard Chartered Bank
StanChart_Liquidity_V4.indd 8 06/09/2012 15:00

11. 9
StandardCharteredBank•Liquiditymanagement:Managingtherisks
are in a better position to deploy their cash where and when it’s needed.
Intercompany lending provided to operating companies, either directly
or indirectly via multi-entity physical sweeping structures, limits the need
for external funding.
Based on the lessons learned in the financial crisis, cash will be even
more valuable in the future. These changes also bring opportunities for
corporate treasurers. With upcoming regulatory changes around Basel III,
balances linked to operating business may provide a valuable alternative
to other short-term investments as banks will start to provide more incen-
tives in order to hold on to operating account balances.
Liquidity risk analytics
Over the past year many banks have been reviewing their liquidity policy
statements and contingency funding plans and are challenging the as-
sumptions made that underpin their behavioural modelling and funding
mismatch guidelines. These items should also be a vital part of any corpo-
rate liquidity risk analytics toolkit and could be linked to the company’s
cash flow forecasting and liquidity stress testing.
Cash forecasting
Industry-leading treasuries have all the cash management fundamentals
in place and are currently focusing on improving their cash forecasting
methodologies and systems. The quality rather than quantity of data is
the critical factor. Industry leaders tend to use the following framework:
n Senior management support – top management needs to acknowl-
edge the strategic importance of cash flow forecasting and give incen-
tives to encourage the right behaviour.
n Decide what data will be used – it is critical that an organization identi-
fies the most relevant data that will provide the needed information. The
data is usually captured from multiple sources.
n Automatically link the above data sources to the forecasting tool –
most organizations spend more time on bringing all the information
together than they spend on validating, analyzing and acting on the
information.
n Performance testing – understand how accurate your forecast is and
find out what the critical drivers are.You need to understand the differ-
ence between the forecast and the actual results. Optimizing the model
could take up 80% of your time spent on cash flow forecasting and this is
usually underestimated.
This is where most corporate treasuries stop, but taking the next step
is just as important. To be able to understand the impact of changes in
the underlying drivers you need to perform a scenario analysis or stress
test.
Liquidity scenario-testing
All treasurers are struggling to better understand and monitor the inter-
relationships between market, credit and liquidity risk. A practical way of
dealing with scenario testing is to follow a three-step approach:
n Identify liquidity risk drivers such as: Decreasing sales margins and
increased costs of goods; Evaporating funding; Decline in value of liquid
assets.
n Design scenarios and assign probabilities: External scenarios such as a
market shock in your line of business, market risk (rates, FX or commodi-
ties); Internal scenarios such as operational risks resulting in claims, rating
downgrade impacting your loan covenants; Ad-hoc scenarios covering
industry or country specific events.
n Model the scenarios: Step 1: Quantify the liquidity outflows in all
scenarios for each of the defined risk drivers; Step 2: Identify the potential
cash inflows to mitigate the liquidity shortfalls identified; Step 3: Deter-
mine what your net liquidity position is under each scenario.
Liquidity risk management
Even with having the cash management fundamentals in place and being
able to forecast your cash positions, plus what the impact of different
scenarios on those positions will be, you are only half way there. The
next step is to determine what the acceptable risk levels are and, more
importantly, what is not an acceptable risk level any more. This requires
benchmarks that are clearly communicated within the organization.
Benchmarking your liquidity risk
The benchmark for liquidity management tools should be the most ef-
ficient method of freeing up internal cash. Depending on the company’s
operating model, solutions such as supply chain financing and physical
sweeping and notional pooling structures should be optimized.
In the current environment companies should consider a careful review of
their investment objectives, portfolio characteristics, risk tolerance, invest-
ment credit quality, limits and performance.
Clear investment guidelines and benchmarks will provide a common
basis for understanding the investment practices within your company.
Execution to limit liquidity risk
Liquidity risk management is entering a new and much more demand-
ing era whereby speed of execution is of the utmost importance. This
requires the support of a bank that understands your business model and
the specific markets you are in, and that is able to provide you the latest
technology and advice to grow your business.
Too often the systems capturing information on operational/business
risks, counterparty/credit risks and market risks are separated. It’s time to
combine these, remove the silos created by banks and corporates alike
and have a more holistic view on how to manage liquidity risks.
Conclusion
In the end it’s all about an effective risk governance structure – what is
your risk appetite, what are your limits, what are your strategies to limit
these risks and how effective is your oversight?
Due to the changed market circumstances some corporates and most
banks are changing their risk policies. They are all changing the way they
work today. Most companies have a management committee made up of
the top senior managers and the treasurer, and their main responsibility is
the formulation of risk management policies for the company. Treasur-
ers are mostly charged with the implementation of such policies, with
the committee having oversight responsibility. Besides efficient systems
and processes there is a need to weave this new risk awareness attitude
into the social fibre of the organization, to create a real liquidity risk
management culture.
9
For further information, please contact
Martijn Stoker
Tel: +65 6596 4189
http://wholesalebanking.standardchartered.com
StandardCharteredBank•Liquiditymanagement:Managingtherisks
StanChart_Liquidity_V4.indd 9 06/09/2012 15:00

12. Deutsche Bank does not provide pooling on the same liquidity manage-
ment platform for all regions. Despite this, Rossi says that the bank
does manage concentration and pooling services on a global basis but
chooses to offer them based on strategic regional financial hubs to sup-
port and address local market regulatory and legal requirements.“Many
of our clients prefer to combine the two by having a locally managed
regional structure that works in conjunction with a centrally managed
global overlay,”she says.“The chief advantage of this is that transaction-
related information and reporting can be viewed centrally or regionally,
depending on our clients’individual requirements.”
Sweeping and pooling services
If visibility of cash is essential to be able to deploy cash effectively, then it
is sweeping and notional pooling that provide the control that treasurers
increasingly require (see boxes on electronics and retailer case studies).
“Our clients are operating in an environment of multiple currencies,
jurisdictions and legal entities,”says Greg Kavanaugh, head of global
liquidity at Bank of America Merrill Lynch, which has re-launched its
single-currency and multi-currency notional pooling offering recently.“By
offering both notional and physical cash concentration options, we can
help them improve the value they receive from their liquidity balances
around the globe.”
All the participating banks offer both single-currency physical and
notional cash pools. Citi has the largest number of locations for physical
pools (69) and Standard Chartered the largest number for notional pools
(48). Europe continues to offer the largest number of locations for banks
offering multi-currency notional pools: within the region Bank of America
Merrill Lynch offers the greatest number of sites (21) while Deutsche
Bank, KBC and Standard Chartered tie to offer the greatest number of
currencies (50).
In Asia, Standard Chartered has the most multi-currency notional pooling
locations with 19 (up from 14 last year).“Enhancements – to deliver fully
integrated liquidity management solutions globally – are being made
to cross-currency cash concentration, integrated multi-bank sweeping
capabilities and multi-currency notional pooling solutions,”says Stocker.
Interestingly, Standard Chartered also offers online‘simulation pooling’
capabilities for clients that want to analyse various pooling options.
Weiner at Citi says that expanding and enhancing the bank’s cross-border
cash concentration services to provide clients with the highest level of
coverage across their operating networks has been the most important
liquidity management development at Citi in the past 12 months.“Over
the last year, we have extended the application of our concentration
engine to over 44 countries, with even more imminently available,”she
says.“Along with that expansion comes a host of features that allow our
clients to customize liquidity structures in respect of regulations and tax
considerations as well as unique operational requirements.”
Sweeping
All of the banks in the survey can now ensure that a sweep is the last
transaction of the day (last year one bank could not): Standard Chartered
continues to offer the largest number of countries where this service is
available. Two banks do not provide automated back values for transac-
tions with previous value dates. All but five of the banks offer overnight
return sweeps, most triggered by balance or time. All the banks offer
automated intra-day sweeps within cut-off times, most triggered by bal-
ance or time.
All the participating banks have multiple MT101 partner bank drawdown
agreements, 11 banks with 200 partners or more compared to last year’s
nine.“This increase may reflect an increasing emphasis by corporates of
the need to improve visibility and control while managing counterparty
risk,”says Steve Everett, global head of cash management and head of
transaction services products EMEA at RBS.“The idea that efficiency can
Retailer creates new Asia liquidity solution
A global retailer wanted to take a modular approach to building its li-
quidity management solution. The company already operated a treasury
and shared service centre (SSC) in China and wanted to concentrate all
of its Asian liquidity in Hong Kong. An important requirement for the
company was that at periodic intervals group liquidity would need to be
concentrated back to its home country.
The solution devised by Standard Chartered uses in-country sweeping
for local currency and US dollar accounts with all the funds concen-
trated into a single account for each currency. A regional cash pool in
Hong Kong uses a target balance sweeping structure to ensure that all
participating accounts have sufficient operating balances. The cash pool
header account in Hong Kong is included in an interest optimization
solution with in-country header accounts in restricted countries that
cannot sweep cross-border. Standard Chartered supports the company’s
SSC in China and Hong Kong using its Straight2Bank FX Payments solu-
tion which supports 130 currencies. The company’s FX hedging needs
are served through a dedicated foreign exchange trading desk located
in Hong Kong.
The global retailer has gained a solution that automates the concen-
tration of balances into Hong Kong and offers complete visibility of
balances at regional level. It enables yield enhancement for accounts
(both US dollars and local currency) where cross border sweeping is not
permitted due to regulation. It also offers comprehensive payment and
receivable on-behalf-of capabilities to centralize and streamline treasury
operations and a one-stop shop for all of the company’s FX needs.
USD
NR
Company
LCY
NR
Company
LCY
R
LCY
R
Liberal countries
Australia, Egypt, Hong Kong,
Japan, Lebanon, New
Zealand, Singapore, UAE
LCY
R
Local entity
LCY
R
LCY
R
Moderately regulated
countries
Philippines, South Africa
USD
R
USD
R
Highly regulated countries
China, Korea, Taiwan1
, India1
,
Indonesia, Malaysia,
Vietnam1
, Thailand1
Hong Kong
LCY
R
Local entity
LCY
R
LCY
R
USD
R
Local entity* *
USD
NR
Local entityLiberal
countries
USD
NR
Local entityModerately
regulated
countries
Accounts participating in Notional
Aggregation. Due to regulatory
restrictions, balances in India are excluded
Legend:
Domestic sweeping * While non-resident account can be opened,
domestic sweeping between resident and
non-resident account is not allowed so
sweeping to resident account is recommended
1
Note: Domestic sweeping in USD not allowed
USD
R
Local entityHong Kong
Concentration of balances in Hong Kong
Source: Standard Chartered
Laurence_V3.indd 10 05/09/2012 15:51

13. 11
LIQUIDITYMANAGEMENTSURVEY2012•Lookingtothelongterm
only be delivered by working with one bank is no longer widely held.”
JP Morgan has one of the largest numbers of MT101 agreements (over
1,000) in place for multi-bank sweeping. The bank’s Hagopian says that
bilateral agreements are important for the bank’s capabilities.“Multi-
bank sweeping leverages these bilateral agreements by issuing MT101
drawdown messages to automatically concentrate funds from a client’s
global relationship banks into a single position with an overlay bank,
thus enabling more efficient use of the consolidated global position,”she
explains. JP Morgan can also concentrate funds in countries where Swift is
not the standard method of bank-to-bank communication.
The importance of multi-bank sweeping is increasingly reflected in the
design of other products. Among the services launched in the past year
by Société Générale’s newly created Global Transaction Banking business
line is a re-designed cross-border cross-currency notional pooling solu-
tion, which allows clients to notionally manage their global cash position
in a unique reference currency, without any need for FX transactions
or swaps. Crucially, it“can adapt to any multi-bank cash concentration
structure already in place and include the countries of the clients’choice,”
notes Sophie Tarralle, head of cash pooling products, global transaction
banking, at the bank. Additional enhancements in the coming months
will include an integrated reporting service to facilitate intercompany
loans management in a multi-bank environment.
More generally, sweeping has come to the fore in the past year with a
number of leading companies announcing – presumably for the benefit
of investors – that they are taking precautions against the threat of an exit
by a eurozone member or even a break-up of the currency union: Voda-
fone says it sweeps funds daily; GSK that it keeps nothing in the eurozone
overnight and WPP says that it not only keeps nothing in the eurozone
overnight, but swaps it all to dollars every night (see box on Diageo case
study).“For global companies with the ability to sweep and hold cash
in different countries, the quest for security means that cash balances
are frequently being swept out of continental European countries and
into UK bank accounts on a nightly basis by many of the world’s largest
companies,”says David Manson, global head of liquidity management at
Barclays.
Investment
This year’s liquidity management survey shows that all but one of the
banks accept a range of 10 currencies or more for cash investments. A
handful of banks – HSBC, KBC, Société Générale, Standard Chartered
and UniCredit accept 50 currencies.“Our cash investment capabilities
complement our cash management services,”explains HSBC’s Schickler.
“As we offer deep local payable and receivables solutions in nearly
every market in which we operate, it is necessary to offer local currency
services that correlate accordingly. As most developed market interest
rates remain low if not close to zero, some companies are choosing to
accept heightened FX exposure in order to generate increased returns
on their cash portfolio.”
In line with the 2011 survey, this year’s survey shows that all the banks
provide both an investment desk and an investment portal, with just over
half providing investment instruments from other financial institutions as
well as their own bank.
For corporates, the turbulent macro-economic and financial environment
has created a conundrum in relation to investment. According to Tarralle
at Société Générale, they have been unwilling to invest in the business
Diageo plans for any eurozone eventuality
With storm clouds darkening over the eurozone, the extreme volatility
of market and economic conditions has been a concern for corporate
treasury teams worldwide, especially for those that operate in Europe.
Specifically, fears have mounted regarding the potential for assets to
be effectively frozen should problems in a country in the eurozone
deepen. Diageo’s treasury team wanted to plan to reduce the impact
of such a scenario. Its treasury function operates as an in-house
corporate bank and all cash is concentrated in London. To minimise
its exposure, the company wanted to find a reliable and risk-managed
solution to enable consolidation of cash flows, while establishing
centralised control in London.
Diageo’s solution was to partner with Bank of America Merrill Lynch to
work through the impact of different scenarios on its cash manage-
ment structures to enable it to put in place the right contingency
planning to make sure it could minimise potential disruption.
The solution allows Diageo to configure parameters according to its
exact requirements to provide unprecedented control over its in-
country cash positions. Specifically, it enables the company to refine
existing sweeping functionality to incorporate real time benefits and
to automatically calculate and pull balances from third-party bank
accounts in specific countries for repatriation to the UK, where regula-
tions are supportive. It also allows Diageo to instantly restrict any
outgoing payments in the event of a sudden change in the market
conditions, in line with its cash management policy.
Implementation of the solution has ensured that Diageo could retain
its local bank accounts in the countries with both Bank of America
Merrill Lynch and its various third-party banks, for its daily payables/
receivables management. The seamless flow of funds in and out of
the centralised liquidity structure enables it to effectively manage its
risk and limit exposure. However, the structure significantly reduces
the risk of losing any cash associated with the intra-day movement
of funds. In these unprecedented economic times, Diageo’s foresight
provides treasury teams with a smart solution to protect their cash in
the event of a crisis incident.
Martijn Stocker, global head, liquidity management, transaction
banking, Standard Chartered
Laurence_V3.indd 11 05/09/2012 15:51

14. Is your treasury ready for the
new global rules?
For most of the past decade, treasurers have coped with challenges to their corporations’
liquidity management – from financial markets melting down to a global recession, potential
national defaults and regional debt imbalances. In response to these increased stresses
and a sustained low interest rate environment, these finance executives have accumulated
historically unprecedented levels of cash
The objective of the cash accumulation has been to maintain a cushion
against future challenges to their organizations’access to capital and pro-
vide flexibility to fund strategic opportunities. A recent Treasury Strategies
study placed corporate cash holdings by US companies at $2.23 trillion,
€1.9 billion for companies in the eurozone and £785 billion for those in
the UK (as of 31 December 2011). And, in the US, corporations hold almost
75% of total liquidity in overnight investments, money funds and bank
deposits, according to the treasury consulting firm’s study.
Although a survey last year by the Association for Financial Professionals
(AFP) indicates that the drive to build cash has abated somewhat as eco-
nomic conditions have improved, most corporations still find themselves
awash with short-term funds. Now, however, they face more limited
options for cash placement, thanks to a host of shifting market conditions
and impending rule changes.
Rather than another global challenge, finance executives are about to
confront a raft of new global and US regulations instituted in the wake of
the economic collapse and designed to strengthen the overall stability of
the markets. Ostensibly aimed at financial institutions to prevent some
future unknown threat from spilling over into the broader economy, these
new rules are also likely to drive treasurers to rethink investment choices
for short-term cash in terms of risk profile, liquidity and return.
A quick look at the regulations
In the US, the Dodd-Frank Wall Street Reform and Consumer Protection
Act mandates, among other things, unlimited Federal Deposit Insur-
ance Corporation (FDIC) protection for balances in non-interest bearing
transaction accounts. However, that protection may expire at the end of
this year. The end of this insurance coverage may add a degree of risk to an
otherwise conservative cash strategy.
The Basel III Accord will take effect over the next several years. It will
establish new global standards on bank capital adequacy and market
risk. Banks will be required to maintain strong liquidity buffers of
high-quality assets – mainly government-backed – against a portion
of any deposit that does not have a term of greater than 30 days. In
cases where deposits are not considered operating funds this new
requirement may significantly limit the value and desirability of short-
term funds for banks.
Finally, there is also the potential for new regulations affecting money
market funds. The changes under consideration include capital require-
ments, holdback provisions and variable fund net asset values.
Preparing your treasury
While the full impact of the rule changes has yet to play out, their aim
is to require a higher degree of precision in liquidity and investment
management.
Here is a checklist of questions treasurers may want to consider, not only
to protect short-term funds and invest them wisely, but also to maximize
their value in this changing environment. The list is simply an attempt to
raise awareness about some initial issues facing treasuries, and help to
begin a dialogue within your companies and with your bankers about the
impact of change.
Operating cash at banks
First, take a look at operating cash being held at banks.This is cash that can
provide a tremendous source of value in times of crisis. Key elements to
consider are the complexity of managing cash flows across your operating
relationships, particularly in times of market stress, and the importance
placed on having the right partnership with your primary operating bank.
n Have you adequately assessed the resilience of your operating banks?
Have you examined their capital strength?
n Have you explored how the expected removal of unlimited FDIC
insurance at the end of 2012 for non-interest bearing balances will
impact your management of counterparty limits?
n Should full FDIC coverage expire, will you require additional
counterparties? If yes, have you calculated the risks and costs of
managing a larger number of counterparties?
n Have you identified the implied term extension of your operating cash?
"While the full impact of the rule changes has yet to play out, their aim is to
require a higher degree of precision in liquidity and investment management.”
JPM_Liquidity_V8.indd 16 06/09/2012 14:11

15. 17
JPMorgan•Isyourtreasuryreadyforthenewglobalrules?
n Where possible, have you explored how cash concentration structures
– within a currency and cross-currency – can help provide visibility into
counterparty exposures and mobilize cash quickly?
n Are you regularly reviewing your investment policy to ensure that
there is enough flexibility to make changes quickly?
n When looking at counterparty limits vis-à-vis investment duration, have
you analyzed your level of liquid versus term cash in determining limits?
n Have you maximized the return on your bank operating balances
through earnings credit rate (ECR) programmes?
n Have you explored extending your ECR programmes globally to get
more value for operating cash? Have you talked to your bank about
extending ECR value to non-traditional operating product classes?
Non-operating short-term deposits at banks
Under Basel III, financial institutions will have to maintain liquidity buffers
of high-quality assets against a portion of any deposit that does not have
a term of greater than 30 days. In many cases, this may significantly limit
the value of these funds to both banks and corporations.
n Have you discussed with your counterparties the disposition of non-
operating balances post-Basel III?
n Have you asked if pro-forma reporting by banks in 2012 through 2014
could accelerate the impact of Basel III regulations prior to full industry
adoption in 2015?
n Have you examined your balances and sources of cash to determine
which funds might qualify as operating balances?
n Are there other options for these funds, such as laddered contractual
terms or other means of extending contractual term while retaining
liquidity?
Money market fund placements
Money market mutual funds are still among the most popular investments
for corporate cash, providing an excellent source of liquidity and
diversification. However, the new rules being considered, especially for
funds operating in FINRA jurisdictions, may ultimately affect their overall
utility and raise questions about how and when to appropriately use them.
n Have you considered expanding your money market fund programme
to include additional currencies?
n For non-operating short-term cash, how do you balance diversification
while effectively monitoring counterparty investment limits?
n Are you considering changes in response to the new regulations? For
example, will you alter the amount of money you will put into money
market funds given new liquidity requirements?
n Have you considered the implications for your investment guidelines
of floating net asset values or holdback provisions? What Enterprise Risk
Management (ERM) or other systems (eg, tax) updates would you require?
n Have you looked at the potential impact on operating accounts if
funds are swept to a floating Net Asset Value (NAV) programme? On
reconciliation systems?
Secured investment alternatives
The regulatory changes and market dynamics, including the proposed
expiration of unlimited FDIC insurance, may also drive financial managers
to consider alternative, high-quality secured investments.
n Are you appropriately positioned in terms of credit and concentration
risk? Will your positioning change if unlimited FDIC insurance expires for
transaction balances?
n Are you prepared as short-term market rates trend negative in a
growing number of currencies?
n Have you explored secured short-term investments, such as non-
traditional repo or collateralized commercial paper, as part of a diversified
cash management strategy in light of expiring unlimited FDIC coverage?
The time seems ripe to assess how best to prepare for the impending
changes and begin to review the innovative ways available to meet these
new challenges. J.P. Morgan stands ready to assist. If you would like to
discuss these issues further, contact your local relationship manager or
e-mail: treasury.services@jpmorgan.com.
13
For further information, please contact
e-mail: treasury.services@jpmorgan.com
JPMorgan•Isyourtreasuryreadyforthenewglobalrules?
Phillip Lindow,
Head of J.P. Morgan treasury
& securities services liquidity
solutions
JPM_Liquidity_V8.indd 17 06/09/2012 14:11

16. because of uncertain macro-economic conditions and consequently have
relatively elevated cash levels. It is estimated than European corporates
have as much as €1.3 trillion in cash while Apple alone is reported to have
$100 billion of cash.
Barclays’Manson agrees:“With economic uncertainty seemingly the new
norm, businesses have become significantly more conservative. Indeed,
over the past four years it has been much easier to say no to major invest-
ment, no to ambitious growth plans and, conversely, yes to building up
cash as a buffer to protect operations in case things were to take a major
turn for the worse,”he notes.“What to do with this built-up cash, particu-
larly where to put it, has become one of the key questions of the day.”
The same turbulent macro-economic and financial environment condi-
tions make it more challenging to invest that cash. As a result, many
corporates have reassessed their investment policies, which detail which
markets, instruments and counterparties are acceptable, according to JP
Morgan’s Hagopian.“How quickly can they access their cash? They know
now that even hours may be critical. Does the yield pick-up of longer-
dated investments adequately compensate for reduced liquidity? Almost
certainly not. Are there potential regulatory changes that could create
new challenges for a market or instrument? The inevitable result of all
these deliberations is almost certainly a reduction in the number of eligi-
ble instruments and counterparties and ever shorter weighted average
maturities, all putting further pressure on yield.”
Given the environment, companies are understandably continuing to
prioritize security and liquidity over yield when choosing the best place to
hold their deposits. Suzanne Barry, EMEA head of liquidity and invest-
ments, GTS, at Bank of America Merrill Lynch says that the optimism
evident in mid-2011 that macro-economic conditions would improve in
2012 prompted some corporate treasurers to search for yield.“However,
this optimism was short-lived,”she adds.“With continued signs of global
stalling, corporates continue to seek low-risk bank deposits to safely
harbour their excess liquidity.”
Indeed, Barry notes that“ongoing discussions on proposed regulatory
reform for other investment alternatives such as money market funds [in
the US] and the closure of some funds in certain regions to new clients
as a result of deteriorating market conditions and falling interest rates [in
Europe]”has prompted“an increasing shift to bank liabilities”and a reduc-
tion in money market fund exposure over the past 24 months.
Counterparty risk
The increasing shift to bank deposits poses additional problems for treas-
urers. Counterparty risk has been a dominant theme since the onset of
the financial crisis and the collapse of Lehman Brothers but the eurozone
crisis has exacerbated the problems facing corporates given the dramatic
lowering of many banks’credit rating. The transaction banks that partici-
pated in this year’s survey have not been immune from downgrades. But
all have maintained the investment grade ratings that are essential to
retain the confidence of corporates with regard to investment.
“Given the market conditions and unprecedented regulatory change,
corporates are reviewing their current counterparties,”says Manson at
Barclays.“This increased focus on counterparty risk management and the
current ratings of banks has led treasurers to review their policies. There
is an increasing view however that banks are treated in many ways as just
another debtor, as some financial institutions have lower credit ratings
than their corporate clients. The current emphasis on counterparty risk is
leading companies to look more closely at where they are placing depos-
its, depending on the nature of their business flows, payment obligations
and geographical footprint,”he adds.“Many clients are then placing their
structural cash surpluses into a banking location of choice, based on their
“One of the key trends in the market today is the increasing demand and
complexity of liquidity management as companies expand beyond their
home or current operating sphere”
Elyse Weiner, global head, liquidity and investments, at Citi
Steve Everett, global head of cash management and head of
transaction services products EMEA at RBS
Laurence_V3.indd 14 05/09/2012 15:51

17. 15
LIQUIDITYMANAGEMENTSURVEY2012•LookingtothelongtermLIQUIDITYMANAGEMENTSURVEY2012•Lookingtothelongterm
treasury policy and risk appetites.”
Of course, counterparty risk is just one consideration for treasurers when
devising an investment policy. They also are faced with the difficult task
of optimizing surplus liquidity in an extremely low interest rate environ-
ment.“As current interest rates are effectively negligible across the globe
– and even turning negative – it has become increasingly challenging for
treasurers to earn any yield on their investments,”says Deutsche Bank’s
Rossi.“This means that many are often left with large amounts of idle
cash, and it is of the utmost importance that banks develop investment
options to provide clients with higher interest rates on stable, longer-
term cash balances.”
Impact of regulatory change
Fortunately, regulatory changes – most notably Basel III – are prompt-
ing major change in the world of bank deposits and spurring innovation
among bank providers.“While risk is a top concern, innovation in the
world of bank deposits is offering companies some new opportunities –
most notably the ability to improve yield by drawing on the more flexible
products on offer,”explains Barclays’Manson.
Manson says that once security and liquidity requirements have been
satisfied, treasurers have to make their money work.“With banks compet-
ing for deposits to boost balance sheets, there are excellent rates that can
be secured on even overnight money today,”he notes.“Rates depend on
several factors, but the overall relationship a corporate has with its banks
and what else this business wants from its cash deposits is key.”
One crucial change is that under Basel III, stable operational corporate
balances have the greatest value for banks.“Balances which are more
volatile (such as discretionary balances) will attract lower returns because
banks holding those deposits will have higher capital requirements to
ensure sufficient liquidity in times of stress,”says Manson.“As Basel III
moves closer there will be an increasing polarisation between how we
value operational balances and discretionary balances. This will in time
lead to a dilution of the return on investment for discretionary balances,
increasingly forcing the hand of corporate treasurers to either surrender
yield for liquidity; or conversely to term out deposits for greater returns.
Operational cash balances will be increasingly the bedrock of the bank/
client relationship and will represent an increasing source of value be-
tween clients and their bankers.”
Changing relationships
The 2012 Liquidity Management Survey provides a number of
insights about the capabilities of the participating transaction banks
that are helpful to any corporate treasurer considering their liquidity
management options. However, as a quantitative survey it does not
track an increasingly important factor in liquidity management – how
the customer is supported and how a relationship is built with clients.
To be sure, all participating banks in this year’s survey offer dedicated
operational and customer support. But many banks say that clients
now expect their banks to go further in supporting them.
“In the context of changing cash management requirements, busi-
nesses are looking to build strong relationships with their banks,” says
Manson at Barclays. “Banks that can demonstrate a solid understand-
ing of their clients’ requirements and business environment are better
placed to support a risk-conscious cash management policy.” He
adds: “Service quality is a top priority for the majority of companies
and many are making more strategic decisions based on service,
technology, reporting and management information.”
Deutsche Bank’s Rossi says that, over the past year, the changing reg-
ulatory and credit landscape has heightened the need for corporates
to manage their banking relationships more closely, and underscored
the importance of strong banking partnerships. “While further regula-
tory oversight has been created to strengthen the global banking
system and financial landscape, navigating the resulting changes is
a significant challenge,” she says. “Understanding and preparing for
the impact of the proposed measures requires increased dialogue
between corporates and their bank partners – and this dialogue must
be maintained as regulatory requirements continue to evolve.”
Inevitably, deepening relationships will continue to be a major focus
of investment for transaction banking. Barry at Bank of America
Merrill Lynch says that the bank’s most significant development in
liquidity management over the past year is the growth of its client-
focused liquidity management advisory services business. “In good
times, efficient liquidity management across countries, currencies
and regulations is complex,” she notes. “So in our continued chal-
lenged environment, corporate treasurers are increasingly looking to
their banking partners to provide strategic advice and solutions on a
global scale.”
Suzanne Barry, EMEA head of liquidity and investments, GTS, at
Bank of America Merrill Lynch
Sophie Tarralle, head of cash pooling products, global transaction
banking, SG
Laurence_V3.indd 15 05/09/2012 15:51