IBS Journal December 2016
19
IBS Journal: How are pooling misconceptions being challenged today?
Ron Kors behind it?
RK: Our global Cash Pool optimises global cash positions by enabling the full offset of working capital cash balances in 35+ currencies, and over 90 countries, to a single currency of the corporate’s choosing. Corporate treasury does not need to execute FX swaps across each subsidiary’s currency cash holdings to ensure that balances bear interest. Rather, this activity is outsourced to BMG. And because there is no need for any physical exchange of currencies, currency exposures are eliminated. Corporate treasury simply manages the total balance of the accounts in its chosen single currency.
The solution works equally well for centralised and decentralised treasuries. A cash pool can also function as an in-house bank in its own right, meaning that companies do not have to invest in internal systems or resources – or take on the risk and compliance burden associated with running an in-house bank.
RK: As the benefits become more widely known, multi-currency and multi-entity cash pooling is no longer seen as a dark art. However, there are still many misunderstandings that surround it. Alongside the myth that cash is not physically concentrated, and requires costly foreign exchange transactions, one of the most common misconceptions is that cash pools require cross-guarantees or cross-indemnities.
While this may be the case at some banks, BMG’s legal agreement is entirely based on a bank pledge and full reciprocal legal right of offset. This means that a multinational does not require any bank credit facilities since subsidiary surpluses are automatically offset with other subsidiary borrowings. Due to the bank pledging arrangement, inter- company loans can be avoided.
Also, unlike some regional or global cash pool projects taking a lot of time to build up from the ground, thanks to its multi-bank capabilities, a BMG Cash Pool can be implemented within a relatively short timeframe. By taking a top-down approach, treasury can first obtain the necessary control and visibility to manage their global cash positions, and focus on improving in-country and regional cash management afterwards.
IBS Journal: To what extent is Basel III a threat to pooling?
RK: Basel III prescribes that when multiple claims and liabilities exist (separate bank loans and deposits), banks will likely have to hold more capital and a larger liquidity buffer. However, many banks, including BMG, have architected their cash pool solutions ensuring that just a single claim, in a single currency, on a single counterparty remains at the end of each business day. The expectation is that this will be further clarified in legislation, keeping them economical for treasurers.
DO: In short, pooling will continue to be offered by committed banks, including BMG and ING. But the industry will also look to explore alternatives for treasurers, leveraging the latest cash management and technology developments to ensure corporates have a wide choice of solutions available to centralize and manage their global cash.
IBS Journal: What might an alternative to pooling look like?
DO: As Ron alluded to earlier, treasurers across the globe are increasingly looking into the wider possibilities of Virtual Bank Accounts (VBAs). At a fundamental level, VBAs are bank-issued virtual current accounts that replace current physical accounts and instantly route payments and collections to a linked ‘master’ real current account. Every VBA has a unique virtual bank account number (VBAN), which helps to segregate funds in the master
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