by Bas Rebel, Senior Director of Corporate Treasury Solutions, PwC The Netherlands, Philippe Förster, Director, PwC Luxembourg and Claire Howells, PwC UK
Since our article on notional pooling in January 2016, 'Die Another Day', the debate has continued to accelerate. In that article, we highlighted the potential impact on some banks and uncertainty around timing to formulate an adequate response, however the tone and direction of the IFRIC agenda decision should urge corporate clients who rely on notional pooling to now plan for the worst.
What is the point?
There is mounting pressure by Basel III and CRD IV on the cost of notional pooling products due to capital requirement and liquidity coverage ratio calculations. The discussion partially gravitates around distortion of the level playing field in the transaction banking space as a result of some deviations in how Basel III is interpreted and implemented in different legislations. Closely related is our observation that banks have different opinions on the implications. Some have made alterations to their pooling products that, in their opinion, counter the impact of national regulation.
Another part of the discussion focuses on the preconditions of net representation of bank balances. Because Basel III took its language directly from decade-old accounting standards, the IFRIC agenda decision is pivotal for the viability of the various notional pooling products.