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The End of Cash Pooling?
by Helen Sanders, Editor
Cash pooling, particularly cash concentration (physical pooling) is well-established as a fundamental technique for treasurers to manage corporate liquidity, both domestically and cross-border (figure 1). However, given some of the recent regulatory and technology changes that have emerged in recent years, to what extent do treasurers really need cash pooling any more, particularly in regions such as Europe? As Chris Paton, Bank of America Merrill Lynch says,
“The basics of liquidity management have not changed: corporations still need to balance security, liquidity and yield, irrespective of the interest rate environment and degree of FX volatility at a particular time. What is changing, however, is the regulatory environment in which treasurers manage their cash, with Basel III and the liquidity coverage ratio (LCR), SEPA, liberalisation in China and changes to regulations in local markets all impacting on the opportunities to centralise liquidity.”
The impact of SEPA
As Jan Rottiers, BNP Paribas explains, with cash pooling a mature technique, demand for these solutions is relatively steady, and is supported by a large number of banks,
“In general, demand for both cash concentration, including variations such as target balancing, and notional cash pooling has remained consistent in recent years. While there has been some inconsistency in banks’ capabilities in the past, some have brought their technical capabilities up to standard so a growing number can now offer services such as intra-day zero-balancing as well as end of day sweeps.”
In theory, however, SEPA (Single Euro Payments Area) should have resulted in a decline in demand for cash pooling across SEPA countries. After all, one of the value propositions of SEPA was the ability to replace accounts held across all SEPA countries with a single euro account. Although an increasing number of companies are centralising payments including the use of payments-on-behalf-of (POBO) structures (and in fewer cases centralising collections, including collections-on-behalf-of [COBO]) it appears that treasurers have not significantly simplified their cash management and bank account structures. Bert Terlien, Head of Cash Pooling Product, Global Transaction Services, RBS confirms,
“SEPA has not resulted in any significant loss of appetite for cash pooling amongst our customers. There are still reasons why a company may hold multiple accounts in a country, and across Europe, and although we expect treasurers to simplify their account structures to some extent, cash pooling will continue to be a requirement.”
While it is true that the promise of SEPA has not been entirely fulfilled, for reasons that are beyond the scope of this article, corporations operating in Europe could reduce their bank accounts in Europe to a level where automated cash pooling services from their banks are no longer required. The fact that they have not done so, and show no immediate signs of doing so, would suggest that it is not a major priority. Indeed, given the ease and widespread availability of cash pooling in Europe (or rather, western Europe more specifically), achieving visibility and control over cash held in accounts with multiple banks, and enhancing controls over bank account management are likely to be more significant drivers of account rationalisation than the wish to simplify the use of cash management techniques.