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In-house Banks Come of Age in Latin America

Structure promises financial and strategic transformation

by Martin Barrios, Latin America Large Corporate and Multinationals Sales Executive, Global Transaction Services and Luiz Carlos Couto, Latin America Financial Institutions Sales Executive, Bank of America Merrill Lynch

Corporates with operations around the world are facing numerous challenges today. The geopolitical and economic environment – both regionally and globally – is creating uncertainty and hindering growth, while interest rates remain at record lows. Within Latin America, foreign exchange (FX) volatility has increased, prompting companies to reconsider how they manage FX risk and seek more effective ways to move funds between entities and reduce their exposures.

At the same time, new bank regulations are being introduced – most notably Basel III, which is expected to increase banks’ costs of holding high quality liquid assets required for certain types of deposits under Basel III’s liquidity coverage ratio. As a result, it will change banks’ appetite for certain types of deposits, and impact the rate of return on long-term deposits.

Companies are responding to the challenges they face in a number of ways, and starting to strongly consider the use of in-house banks (IHBs) to improve visibility and control over FX and funding, help mitigate some of the risks presented by economic uncertainty, and improve operational efficiency, enabling better use of internal balances.