2 min readAbstract As we recap market developments in the first six months of 2013 and look to the future, we reflect on the following five observations from a recent liquidity conference: Low yield environment turning the corner; Corporate cash balances up, investors less worried; Supply still constrained, but more issuers entering the market; New money market…
2 min readAbstract Experience has taught us that even seemingly strong counterparties can fail without warning. Counterparty risk management has become more challenging in recent decades due to concentrated exposures, complex financial instruments and deteriorating bank credit. Corporations should manage risk proactively, have an integrated risk policy across business lines, diversify risk by setting exposure limits according…
2 min readAbstract As Federal banking authorities work to implement rules to allow for the quick and efficient dissolution of too-big-to-fail banks, ratings once again are under assault, and most large U.S. banks could lose their access to the short-term markets toward the end of 2013. The anticipated negative rating moves will be the direct result of…
2 min readAbstract In this paper, we discuss the concept and benefits of constant risk aversion in cash portfolio construction. The process may help treasurers understand, gauge and rationalize investment decisions to achieve consistent risk characteristics and to avoid the whiplash that can result from drastic pendulum swings between high-risk and no-risk. The Need for a Constant…
2 min readAbstract Global banking authorities’ moves to resolve systemically important financial institutions (SIFIs) may result in first losses being borne by bank creditors in the event of a failure. Under the new resolution authority, size no longer may be an indication of safety for bank credit. Instead, one should look to a bank’s fundamental business condition…
2 min readExecutive Summary We believe that mandatory disclosure of daily market value NAVs will be a significant step toward better risk transparency in money market funds. It is functionally equivalent to the FSOC/SEC’s floating NAV proposal without the unnecessary operational, accounting and tax complexities. When applied along with objective liquidity gates and/or reasonable NAV buffers, the…
2 min readAbstract We have identified the acceleration of money market fund reform, the scarcity of eligible investments and the threat of negative yield as three challenges facing corporate treasury professionals in 2013. Our recommendation remains the same as found in previous research – consider a separately managed account as a defensive measure against regulatory uncertainty, supply…
2 min readAbstract Deposits at the 20 largest U.S. banks are generally concentrated in banks with Tier 2 ratings, many of which are just one step away from BBB status. Significant cross-concentration of bank names also exists in large prime money market funds. The dominance of bank exposure in corporate portfolios through deposits and money market funds…
2 min readAbstract The expiration of transaction account guarantees requires actions from treasury cash managers. While essentially all of the $2.0 trillion growth in domestic deposits since 2007 went to the 20 largest banks, the banks’ deposit credit strength declined by almost three ratings notches over the same period. Although 13 of the 20 had Aaa deposit…
2 min readExecutive Summary The use of separate accounts to complement money market funds (MMFs) may help optimize risk and reward trade-offs in corporate cash management. The investments of time and research in establishing a separate account relationship may bring just rewards in times of uncertainty. Separate Account Simulator™ Results: A 50/50 portfolio of 60-day WAM may…