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Basel III: Collateral Damage or Emerging Opportunity?

Basel III: Collateral Damage or Emerging Opportunity? 

by Karin Flinspach, Managing Director, Head of Cash Products, Transaction Banking, Standard Chartered

One of the biggest challenges facing corporate treasurers and CFOs today is identifying and overcoming the impact of regulatory change. This is the case with Basel III, a series of reforms designed to strengthen the regulation, supervision and management of risk in the banking sector. However, as banks globally implement Basel III, the far-reaching implications for corporate users of banks’ services are becoming increasingly apparent.

Corporate treasurers are accustomed to managing regulatory change; the difference with Basel III, however, is that while treasurers have no specific compliance obligations, the solutions and pricing offered by their banks are changing as banks adapt their operating models to achieve compliance. 

Changing value of deposits 

One of the most immediate implications of Basel III for corporations is that different sources of liquidity no longer have the same value to a bank. Under the Liquidity Coverage Ratio (LCR), banks need to demonstrate their ability to weather a period of 30 days of stress, so unless deposits can be shown to be linked to day-to-day business activities, deposits need to have a tenor of above 30 days to be attractive to the bank. Furthermore, a deposit received from a non-financial corporation has more value to a bank than a deposit received from a financial institution, which is considered to have a higher run-off rate. This has considerable implications for corporate treasurers for whom short-term deposits are often the mainstay of cash investment policy, particularly when combined with the impact of low or negative interest rates in many markets.