38 I AFP Exchange April 2014

Bank of America Merrill Lynch Article

Navigating change has become routine for todays corporate
treasurers. Having survived the turbulence of the last five
years, treasurers are no longer standing still; they are looking
for opportunities to transform and grow their businesses. With
new regulations on the horizon, and technology advancing at
a rapid pace, treasurers are rethinking their role and coming
face-to-face with new and better opportunities to expand
their influence within the company.
The role and remit of the treasurer has expanded well beyond
the traditional job of placing credit facilities and ensuring
access to liquidity. With this change, corporate treasurers
are relying more heavily on their banks to provide the
sophisticated technology and advanced solutions needed to
help them improve efficiency and gain greater visibility and
control over their cash.
Previously, the high interest rate environment had allowed
treasury to deploy excess cash in international markets in
order to earn a higher return. That is no longer the case.
While many companies have large amounts of surplus cash
sitting around the world, near-zero interest rates mean that
there is currently little appetite for taking on additional risk
in order to increase yield. Instead, companies are looking
for other opportunities to grow the bottom line such as
increasing efficiency.
Todays treasurers have also moved away from taking a
35,000-feet view of their transaction business. They are now
more actively engaged in managing risk and working capital
in order to drive efficiencies a role that has elevated their
visibility within the organization.
A number of different factors are currently driving this change
and enabling the treasurers role to expand:
1. Efficiency. Many treasurers now have to achieve more
with fewer resources and are consequently looking for ways
to become more efficient in all areas of treasury particularly
in payments, receivables and liquidity management. The
treasurer is in a unique position within the company to
influence all three of these areas.
By gaining more control over their payment and collections
processes, companies can improve their working capital
position, take advantage of early payment discounts offered
by suppliers and reduce their reliance on external debt. The
practice of centralizing payments and receivables is gaining
a lot of attention, while supply chain finance has become
a mainstream solution for large corporations looking to
optimize their suppliers working capital as well as their own.
Liquidity management structures, meanwhile, can enable
companies to concentrate funds, thereby optimizing the value
of cash and reducing borrowing costs through self funding.
Notional pooling can be used to achieve similar benefits
without physically moving cash. All of these solutions have
become more widespread as treasurers work to make their
processes more efficient across the board and around the
world. These techniques enable treasurers to strengthen their
liquidity positions and achieve greater access, visibility and
control across many currencies and geographies.
2. Paper to electronic. Six years ago, the move from paper
to electronic payments and receivables was typically driven
by individual treasurers looking to make improvements within
their own companies. Today, the shift from paper to electronic
is being driven by the industry as a whole. If a companys
vendors want to pay the company electronically, for example,
the treasurer has little choice but to comply.
When embarking on a paper to electronic payment initiative,
companies can generally expect to achieve cost savings,
operational efficiencies and/or a reduction in check fraud. A
number of electronic options are available such as wire ACH
or card payments and companies may opt for a combination
of some or all of these, depending on their requirements.
3. International expansion. Flat growth rates in the U.S.
have made the prospect of international expansion more
attractive in the last few years. Yet many companies face
barriers to entry, including a lack of knowledge about overseas
markets, as well as economic uncertainty in target markets
and difficulties in finding the right local partners.
Treasurers have an important role to play as companies enter
new markets. In addition to setting up new bank accounts,
processes and policies in the new location, treasurers can
also work to navigate local tax requirements, regulatory
restrictions and payment instruments. By working with a bank
that has both global reach and local expertise, treasurers can
better integrate the new operations into their existing cash
and liquidity management structure.
4. Focus on risk. One of the healthiest outcomes of the
last few years from a treasury point of view has been a
heightened focus on risk management. Treasurers today
are actively monitoring and mitigating a wider range of risks
than in the past, and are doing so using more advanced tools
and methodologies.
Counterparty risk has come to the fore in recent years, with
many companies diversifying their banking relationships and
adopting stricter counterparty limits that specify how much
cash the company can deposit with any one bank. In the last
couple of years, treasurers have also begun to pay attention
to a wider range of metrics as they monitor the health of their
banks more closely.
One of the fastest moving areas of risk management is
fraud, particularly as cyber criminals continue to become
more sophisticated and ambitious. In order to address this
area, there is a growing need for treasurers to become more
vigilant and aware of possible threats. Banks are investing
heavily in developing robust technology and stringent security
controls, but treasurers also need to implement their own
processes, practices and policies in order to protect their
companies from a steadily growing range of cyber threats.
Meanwhile, treasurers continue to focus on the more
traditional categories of risk, such as foreign exchange (FX)
risk. As companies expand their geographical footprints and
engage in more foreign currency payments and collections,
inevitably they are exposed to additional FX risks. The more
complex the companys exposures, the more challenging it
will be to achieve visibility and control over them.
5. Regulation. Regulatory changes currently in the
pipeline particularly Basel III are also likely to affect
the way in which treasurers manage their cash. While the
focus of the regulations is on banks, the metrics around the
regulations are expected to have an effect on companies
and organizations in their banking relationships. The Liquidity
Coverage Ratio (LCR) under Basel III will require banks to
set aside up to 100% in high quality liquid assets (HQLA)
to offset potential deposit outflows during a time of market
stress. These outflows defined by Basel III LCR focus on
the distinctions between operational and non-operational
deposits, secured deposits, and deposits associated with
certain segments of financial institutions. This will prompt
banks to view certain types of deposits more selectively,
with operational deposits viewed more favorably because
fewer HQLAs will be required to be set aside than for
non-operational deposits.
Meanwhile, reforms proposed by the Securities and
Exchange Commission could mitigate the effectiveness
of money market mutual funds as alternatives for daily
liquidity. Combined, these regulatory developments could
lead treasurers to revisit their investment policies in order to
broaden the scope and definitions of acceptable instruments
for short- and intermediate-term cash.
Great expectations
The dynamics prompting treasurers to gain greater visibility
over their cash and liquidity management structures are also
driving them to seek immediate, hands-on access to their
balances around the globe. Treasurers expect to be able
to log into a system and have a clear view of their global
transactions as well as access to best-in-class tools.
Banks have stepped up to this challenge and invested in
state-of-the-art liquidity portals, offering corporate clients a
wider range of functionalities including multi-bank capabilities
and the management of cash concentration structures.
Increasingly banks are providing a more integrated approach
to areas such as cash management, trade finance and FX,
reflecting the treasurers expanded role.
With the industry having experienced so much change in
the last few years, the platforms, technology and products
provided by the banks are more likely to deliver gradual
rather than dramatic improvements in the years ahead. The
goal will be to make the current foundations stronger, more
transparent and more risk averse. It is also likely that global
banks will continue to expand their international reach in order
to support clients as they expand into new markets.
The role of the treasurer continues to develop. Lessons
learned from the financial crisis are helping companies
develop more efficient and effective treasury management
practices. With a number of different dynamics contributing
to these changes, treasurers are anything but complacent:
They are continuing to seek new opportunities to drive
efficiencies, manage risk more effectively and adopt cutting-
edge technology, while keeping an eye on the impacts of the
changing regulatory environment. In this climate, there is
a greater need than ever for banks to engage more closely
with clients and provide holistic solutions to fulfill their
evolving needs.
Driving treasury forward
Galen Robbins
Head of Global Commercial Bank
Global Transaction Services
Bank of America Merrill Lynch
Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking
activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking
activities are performed globally by investment banking affiliates of Bank of America Corporation (Investment Banking Affiliates), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and members of SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products
offered by Investment Banking Affiliates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed. 2014 Bank of America Corporation. 03-14-0131.A
The power of global connections

WP-03-14-0131_A.indd All Pages 3/10/14 2:58 PM

www.AFPonline.org AFP Exchange I 39
Bank of America Merrill Lynch Article
Navigating change has become routine for todays corporate
treasurers. Having survived the turbulence of the last five
years, treasurers are no longer standing still; they are looking
for opportunities to transform and grow their businesses. With
new regulations on the horizon, and technology advancing at
a rapid pace, treasurers are rethinking their role and coming
face-to-face with new and better opportunities to expand
their influence within the company.
The role and remit of the treasurer has expanded well beyond
the traditional job of placing credit facilities and ensuring
access to liquidity. With this change, corporate treasurers
are relying more heavily on their banks to provide the
sophisticated technology and advanced solutions needed to
help them improve efficiency and gain greater visibility and
control over their cash.
Previously, the high interest rate environment had allowed
treasury to deploy excess cash in international markets in
order to earn a higher return. That is no longer the case.
While many companies have large amounts of surplus cash
sitting around the world, near-zero interest rates mean that
there is currently little appetite for taking on additional risk
in order to increase yield. Instead, companies are looking
for other opportunities to grow the bottom line such as
increasing efficiency.
Todays treasurers have also moved away from taking a
35,000-feet view of their transaction business. They are now
more actively engaged in managing risk and working capital
in order to drive efficiencies a role that has elevated their
visibility within the organization.
A number of different factors are currently driving this change
and enabling the treasurers role to expand:
1. Efficiency. Many treasurers now have to achieve more
with fewer resources and are consequently looking for ways
to become more efficient in all areas of treasury particularly
in payments, receivables and liquidity management. The
treasurer is in a unique position within the company to
influence all three of these areas.
By gaining more control over their payment and collections
processes, companies can improve their working capital
position, take advantage of early payment discounts offered
by suppliers and reduce their reliance on external debt. The
practice of centralizing payments and receivables is gaining
a lot of attention, while supply chain finance has become
a mainstream solution for large corporations looking to
optimize their suppliers working capital as well as their own.
Liquidity management structures, meanwhile, can enable
companies to concentrate funds, thereby optimizing the value
of cash and reducing borrowing costs through self funding.
Notional pooling can be used to achieve similar benefits
without physically moving cash. All of these solutions have
become more widespread as treasurers work to make their
processes more efficient across the board and around the
world. These techniques enable treasurers to strengthen their
liquidity positions and achieve greater access, visibility and
control across many currencies and geographies.
2. Paper to electronic. Six years ago, the move from paper
to electronic payments and receivables was typically driven
by individual treasurers looking to make improvements within
their own companies. Today, the shift from paper to electronic
is being driven by the industry as a whole. If a companys
vendors want to pay the company electronically, for example,
the treasurer has little choice but to comply.
When embarking on a paper to electronic payment initiative,
companies can generally expect to achieve cost savings,
operational efficiencies and/or a reduction in check fraud. A
number of electronic options are available such as wire ACH
or card payments and companies may opt for a combination
of some or all of these, depending on their requirements.
3. International expansion. Flat growth rates in the U.S.
have made the prospect of international expansion more
attractive in the last few years. Yet many companies face
barriers to entry, including a lack of knowledge about overseas
markets, as well as economic uncertainty in target markets
and difficulties in finding the right local partners.
Treasurers have an important role to play as companies enter
new markets. In addition to setting up new bank accounts,
processes and policies in the new location, treasurers can
also work to navigate local tax requirements, regulatory
restrictions and payment instruments. By working with a bank
that has both global reach and local expertise, treasurers can
better integrate the new operations into their existing cash
and liquidity management structure.
4. Focus on risk. One of the healthiest outcomes of the
last few years from a treasury point of view has been a
heightened focus on risk management. Treasurers today
are actively monitoring and mitigating a wider range of risks
than in the past, and are doing so using more advanced tools
and methodologies.
Counterparty risk has come to the fore in recent years, with
many companies diversifying their banking relationships and
adopting stricter counterparty limits that specify how much
cash the company can deposit with any one bank. In the last
couple of years, treasurers have also begun to pay attention
to a wider range of metrics as they monitor the health of their
banks more closely.
One of the fastest moving areas of risk management is
fraud, particularly as cyber criminals continue to become
more sophisticated and ambitious. In order to address this
area, there is a growing need for treasurers to become more
vigilant and aware of possible threats. Banks are investing
heavily in developing robust technology and stringent security
controls, but treasurers also need to implement their own
processes, practices and policies in order to protect their
companies from a steadily growing range of cyber threats.
Meanwhile, treasurers continue to focus on the more
traditional categories of risk, such as foreign exchange (FX)
risk. As companies expand their geographical footprints and
engage in more foreign currency payments and collections,
inevitably they are exposed to additional FX risks. The more
complex the companys exposures, the more challenging it
will be to achieve visibility and control over them.
5. Regulation. Regulatory changes currently in the
pipeline particularly Basel III are also likely to affect
the way in which treasurers manage their cash. While the
focus of the regulations is on banks, the metrics around the
regulations are expected to have an effect on companies
and organizations in their banking relationships. The Liquidity
Coverage Ratio (LCR) under Basel III will require banks to
set aside up to 100% in high quality liquid assets (HQLA)
to offset potential deposit outflows during a time of market
stress. These outflows defined by Basel III LCR focus on
the distinctions between operational and non-operational
deposits, secured deposits, and deposits associated with
certain segments of financial institutions. This will prompt
banks to view certain types of deposits more selectively,
with operational deposits viewed more favorably because
fewer HQLAs will be required to be set aside than for
non-operational deposits.
Meanwhile, reforms proposed by the Securities and
Exchange Commission could mitigate the effectiveness
of money market mutual funds as alternatives for daily
liquidity. Combined, these regulatory developments could
lead treasurers to revisit their investment policies in order to
broaden the scope and definitions of acceptable instruments
for short- and intermediate-term cash.
Great expectations
The dynamics prompting treasurers to gain greater visibility
over their cash and liquidity management structures are also
driving them to seek immediate, hands-on access to their
balances around the globe. Treasurers expect to be able
to log into a system and have a clear view of their global
transactions as well as access to best-in-class tools.
Banks have stepped up to this challenge and invested in
state-of-the-art liquidity portals, offering corporate clients a
wider range of functionalities including multi-bank capabilities
and the management of cash concentration structures.
Increasingly banks are providing a more integrated approach
to areas such as cash management, trade finance and FX,
reflecting the treasurers expanded role.
With the industry having experienced so much change in
the last few years, the platforms, technology and products
provided by the banks are more likely to deliver gradual
rather than dramatic improvements in the years ahead. The
goal will be to make the current foundations stronger, more
transparent and more risk averse. It is also likely that global
banks will continue to expand their international reach in order
to support clients as they expand into new markets.
The role of the treasurer continues to develop. Lessons
learned from the financial crisis are helping companies
develop more efficient and effective treasury management
practices. With a number of different dynamics contributing
to these changes, treasurers are anything but complacent:
They are continuing to seek new opportunities to drive
efficiencies, manage risk more effectively and adopt cutting-
edge technology, while keeping an eye on the impacts of the
changing regulatory environment. In this climate, there is
a greater need than ever for banks to engage more closely
with clients and provide holistic solutions to fulfill their
evolving needs.
Driving treasury forward
Galen Robbins
Head of Global Commercial Bank
Global Transaction Services
Bank of America Merrill Lynch
Bank of America Merrill Lynch is the marketing name for the global banking and global markets businesses of Bank of America Corporation. Lending, derivatives, and other commercial banking
activities are performed globally by banking affiliates of Bank of America Corporation, including Bank of America, N.A., member FDIC. Securities, strategic advisory, and other investment banking
activities are performed globally by investment banking affiliates of Bank of America Corporation (Investment Banking Affiliates), including, in the United States, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Merrill Lynch Professional Clearing Corp., both of which are registered broker-dealers and members of SIPC, and, in other jurisdictions, by locally registered entities. Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Merrill Lynch Professional Clearing Corp. are registered as futures commission merchants with the CFTC and are members of the NFA. Investment products
offered by Investment Banking Affiliates: Are Not FDIC Insured May Lose Value Are Not Bank Guaranteed. 2014 Bank of America Corporation. 03-14-0131.A
The power of global connections

WP-03-14-0131_A.indd All Pages 3/10/14 2:58 PM