Collateral Arrangements

Many corporates are contemplating to enter into collateral arrangements with banks. The European Treasurers' Peer Group has performed a survey to inquire about advantages and disadvantages:

Disadvantages

1. Cash flow may be a problem if the valuations work against you.
   
   
2. Risk of cumbersome administration.
   
   
3. It can be argued that the corporate gets decreased flexibility in managing portfolio when it has to deliver collateral.

Advantages

1. With a CSA the bank’s capital requirements are decreased, which should benefit the corporate.
   
   
2. An arrangement decreases the risk for the corporate on the bank.

If you are interested in participating and learning more about the European Treasurers' Peer Group, please contact me.

Treasury’s Focus is Changing

Since the collapse of Lehman in September 2008 the treasurers’ focus has passed through several phases. The initial reactions were chock, searching for information, comparing to historical patterns (typically the Great Depression) and analytics. Later we focused on FX risk, emerging markets, liquidity and funding and increased governance in credit risk management.

With time the economic conditions have stabilized, the corporates have improved reporting and analytics so the daily operations including liquidity management is under control. Now it is time to face the new reality with having to adjust to a financial situation with lack of credits. We can not foresee credit will be as easy accessible as pre-Lehman ever again. Therefore we need to be more efficient in how we allocate our cash. How do we improve our models for cash allocation and is WACC et al good enough for this situation?