treasury strategies on regulatory reform
DESCRIPTION
Presentation by Treasury Strategies to National Association of Corporate Treasurers on the impact of regulatory reform on corporate finance, banking and the securities industry.TRANSCRIPT
© 2009 Treasury Strategies, Inc. All rights reserved.
Impact of Financial Regulationon Corporate Treasury
Presented By:
Anthony J Carfang, Partner
Cathryn R. Gregg, Partner
To:
National Association of Corporate Treasurers
September 9, 2009
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Agenda
Overview
Regulatory changes impacting treasurers
Two specific items of concern
Preparing for the new (post-crisis) world
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Overview – Massive, Intrusive & Global
Massive• Covers all aspects of financial markets• Alters the flow of capital
Intrusive• Into the details—compensation, culpability, organizational structure• Heavy on compliance
Global• Most countries developing their own schemes• International bodies weighing in• Like an arms race
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Major Regulatory Initiatives
• United States – “Foundation,” Group of 30
• United Kingdom – The Turner Report, CP0822
• European Union – The de la Rossier Report
• Others – BCBS/BIS, Walker, G20, …
Regulatory Change Impacting Treasurers
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Regulatory Change Impacting Treasurers
Key US Regulatory Initiatives
• Group of 30 Report
• Obama – “A New Foundation”
• SEC and CFTC money market mutual Fund proposals
• SEC and CFTC derivatives proposals
• Consumer Financial Protection Agency
• FTC Mandates
• FDIC Initiatives
• Treasury Department Initiatives
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Major Regulatory Themes
Curtail non-bank money market activity• Derivatives• Commercial paper• Money market funds
Raise capital requirements• Banks• Broker dealers• Clearing corps• Insurance companies
Increase liquidity buffers for financial services providers• Must hold shorter duration instruments• More government securities
Regulatory Change Impacting Treasurers
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Regulatory Change Impacting Treasurers
Commercial Banks
Investors & Depositors
Borrowers
99%99%
Banking Pre 1965
• High concentration risk• Lack of transparency
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Modern Money Markets
• Efficient• High transparency• Diversified risk portfolio
Regulatory Change Impacting Treasurers
Commercial Banks
Investors & Depositors
Borrowers
15%-20%
80%-85%
Securities Dealers
Money Market Funds
Direct Instruments Markets (CP, Repo)
15%-20%
80%-85%
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Regulatory Change Impacting Treasurers
Commercial Banks
Investors & Depositors
Borrowers
>20%
80%-85%
Securities Dealers
Money Market Funds
Direct Instruments Markets (CP, Repo)
>20%
80%-85%
Government
??
Future Environment
• Features unknown
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Three Specific Items of Concern
Limit money market fund commercial paper holdings to A1/P1 issuers• Proposed by SEC• Comment period ended Sept. 8
Would reduce supply and increase cost of credit for all but a few top-rated borrowers
Key impact• Utilities• Regional banks and their commercial customers• Food and beverage industry• Rust belt companies
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Percentages do not sum to 100% as multiple response are included. Source: Treasury Strategies , Inc.
Potential Destination of Departing MMMF Assets Percentage of all survey responses
Three Specific Items of Concern
Require money market funds to use a daily fluctuating net asset value
• Proposed in Obama “New Foundation” document• Referred to the President’s Working Group on Financial Markets• Recommendations expected Sept. 15
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Regulation of OTC derivatives proposed by Treasury• SEC and CFTC to regulate exchanges and clearing organizations• Distinguish standardized trades from customize trades• Margin, capital and/or collateral requirements (w/ exemptions)
Benefits• Reduced counterparty risk• Pricing transparency
Negative impacts• Increased hedging costs
– Capital, margin and/or collateral• P&L volatility from imperfect hedges• FAS 133 issues, definitions• Liquidity
– Availability of counterparties– Position limit proposals
Three Specific Items of Concern
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Regulatory Change Impacting Treasurers
It may be 5-7 years before market returns to equilibrium.
• Initial regulatory initiatives
– Each country; multiple agencies within each country
• International bodies attempt to harmonize
• Regulatory competition
• Everyone fine-tunes
• New equilibrium
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New environment for Corporate Treasurers• Higher cost of capital• Higher cost of credit• Higher cost of operating services• Higher cost of managing risk• Higher cost of compliance
Fewer financial service options• Fewer (and much larger) providers• Fewer available instruments• Less relationship leverage• Government allocation of liquidity
Preparing For The New (Post-Crisis) World
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New Imperatives for Treasurers • Solidify availability of credit• Shore up balance sheet, capital structures• Improve global cash visibility• Improve global risk visibility • Improve cash forecasting• Upgrade treasury technology• Become working capital efficient• Update investment guidelines
Preparing For The New (Post-Crisis) World
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For More Information, Contact or Follow Us
Anthony J. [email protected]
Cathryn R. [email protected]
www.TreasuryStrategies.com www.Twitter.com/TreasuryStrat312-443-0840
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