About Treasury
History of Treasury
The financial institutions were highly regulated and the financial markets were not transparent before the deregulation of the financial markets in the 70-ties and early 80-ties. The aim of the deregulation was to make the financial markets more efficient and increase the level of liquidity and decrease the transaction costs. It created a game changer for the financial institutions and new rules with the Basel Accord framework pushing the banks from relationship to arms’-length banking.
At the time the corporate treasury function was mainly an accounting and administrative function managing the company’s cash, loans and foreign exchange. During the 80-ties the combination of deregulation and the evolving information technology made the treasury very risk focused and treasury started to trade and hedge. The corporate treasury was many times not particularly integrated in the core operations of the corporation.
During the last few years there has been a trend to streamline and integrate the silos in a corporation. The role of the treasury is changing from being a black box, only managing financial risk, financing and cash management to become a central function fully integrated with the other functions of the corporation. The requirements imposed by Sarbanes-Oxley Act (SOX) enforced that trend. The treasury now takes on other tasks, such as pension liability management, enterprise risk management, insurance and tax. Corporate treasury is thus becoming a much more strategic function and is expanding its remit within the corporation.
The financial institutions and the regulatory framework created a situation with extensive financial engineering, build-up of immense derivatives positions that finally in 2008 collapsed. The financial markets are suffering from a regulatory framework that did not serve its purpose.
Future of Treasury
During the last couple of decades the largest corporations have outsourced a substantial part of its supply chain and mainly kept R&D, sales & marketing, finance and treasury in-house. This has undoubtedly changed the focus of these organizations from being manufacturing centric to instead managing the financial supply chain and extract the value locked therein.
This coincides with the financial industry experiencing yet a game changer with global banks turning local when requiring financial support from their central banks. Financial institutions will likely be more focused on plain vanilla instruments and work more closely with the clients assisting them better by returning to the relationship banking model. The key drivers: globalization and virtualization, altered regulation and governance, and increased harmonization will be questioned from increased protectionism and awareness of counterparty risk. However the technical opportunities will make the financial institutions face many new entrants within most areas of the value chain.
The regulators will need to draw conclusions from the Basel Accord Frameworks and the Fair Value Principles when creating the new regulatory framework. They would need to focus on the welfare of the society before the welfare of the banks.
Two key topics that has to be resolved going forward:
- Create a global, near real-time, payment system to unlock the vast amounts of money tied up
- Find solutions how to manage a fiat currency regime for the long term
The change in the financial industry creates ample opportunities to develop organizations with different business models and improved streamlining. By combining treasury industry knowledge with technology expertise and a thorough strategic understanding, NFS assists clients to realize these opportunities.