Bankruptcy isn’t pretty, even if it occurs to other organisations. If these organisations are your trading partners, you risk losing out on lucrative deals. This is why banks charge a credit risk spread if you conclude an uncollateralised derivative. How is such a spread calculated and how does it impact the price of the derivative?
Since the financial crisis, the pricing of interest rate derivatives has become more complex. In the past, liquidity spreads and credit spreads were not included when banks were pricing interest rate swaps. In this article we explain in more detail how the pricing of these derivatives has changed.
Royal Bank of Scotland (RBS) acquired ABN-Amro in 2009 and with this it received a very well reputable cash management solution used by many of the large European corporations.
Now in Q1 of 2015, RBS has announced to withdraw their cash management services from Europe. Many European corporations have already confirmed they are now exploring how to replace RBS as cash management bank.
Keeping track of the return on risk-adjusted capital (“RORAC”) that a bank is making on you, can help you to negotiate better banking deals. It can assist you in cementing relationships with your key banks at the same time. The RORAC model offers you the supporting tool to achieve this.
Prior to the financial crisis, the primary reason for setting up an In-House-Bank was to save costs in the area of transactional banking. Inter-company cash flow settlements through internal accounts instead of via external bank accounts, an internal netting of inter-company invoices and current account bookings were often the main drivers behind establishing an In-House-Bank. Experiences since the crisis however have changed the reasons corporates are now establishing an In-House-Bank.
In the coming years, banks have to prepare themselves for compliance with the new Basel III rules on financial institutions.
Effective liquidity management is a way to look for “Idle” cash. An increasing number of companies therefore choose for notional pooling as it enables them to gain more insight into their (global) financial position and in order to optimize the interest income on their accounts. Simultaneously Basel III imposes stricter requirements on offsetting balances (credit and debit), and this brings notional pooling possibly into danger. The question is what impact the introduction of Basel III has to notional pooling services offered by banks.
As a consequence of the European Market Infrastructure Regulation (EMIR), additional rules will apply to companies that enter into OTC derivatives. As a result, the costs and the administrative burden for OTC derivatives will increase.