Treasury
Turning Regulatory Pressures
into Tangible Returns: Managing
the Transformation of the Banks’
Growing Treasury Function
An Interview with Denny Dewnarain & Arnaud Picut
Since the financial crisis, bank treasuries have taken on a much more high-profile role at the centre
of many banks’ operations. In this interview, Denny Dewnarain and Arnaud Picut of Misys explain
why this shift has happened, what it means and how banks have started to respond.
How has the role of the Treasurer changed in recent
years?
take into account LCR, NSFR and STP aspects and put everyth ing on a BCBS 239 architecture.
Denny Dewnarain (D.D.): “It has changed fundamentally. Before the recent liquidity crises and the regulatory reforms that
followed, the Treasurer’s role was, in essence, to execute what
the asset and liability committee (ALCO) had decided. Today,
the Treasurer has a much more high profile and proactive role,
because of the way in which regulations affect a bank’s profitability, margins and ability to raise money. So today, instead of
providing a service to individual business lines, the Treasurer is
like the “DNA” of the bank, indirectly controlling the impact on
the trading, banking and lending books, including risk.
Data quality is a big issue too. With the treasury now more complex and central to the bank, and needing to create an “on the
y” heat map of regulatory risk, it needs control of data quality.
We see banks asking for LCR calculations before and after a
simulated trade. Data needs to be coherent across the business
for Treasurers to make proper projections with the same curves
and liquidity costs.”
In particular, Treasurers now need to have an enterprise-wide
view on the profitability of bank. It’s a shift from a static view,
providing the business with revenue generation, to a proactive
position that looks at how to enhance profitability and assesses
how best to allocate capital to the business. Importantly, this is
an ongoing process and not just about delivering a predefined
strategy.
It’s like a treasury P&L monitoring process.”
Where do you see the main challenges for Treasurers
today?
Arnaud Picut (A.P.): “Clearly, regulations have a major influence. Not just those that affect the Treasurer directly, like the
Basel III LCR, but also those - like IFRS 9 - that demand accurate accounting from transaction to reporting, and BCBS 239,
which compels banks to take a wider stance to achieve longterm compliance.
One RFI that we have received from a bank says quite clearly
that it makes no sense to think of a system today that doesn’t
D.D.: “That’s right. And because activities are more correlated,
treasuries need to think about aggregation modelling across the
whole banking and trading book. Creating the “moving, active
balance sheet” that treasuries need today depends on accurate
forecasting, simulation and stress testing. And aggregation is
complex, bringing with it the need for coherent pricing, market
data and the OIS framework that embeds funding costs. One
client has told us that the level of data they are being asked to
compute today is totally different. Before, they had the banking
book aggregated in a few lines but today, accurate forecasting
depends on detail that they don’t yet have.”
What technology capabilities does the Treasurer need
to meet these emerging challenges?
D.D.: “Treasurers need to be able to populate the deal level
in both banking and trading books in one single platform – and
to do this with the data they got yesterday. This means T+1 at
a maximum when many banks are still operating at T+5. We
identify five further capabilities that treasuries need to support
their enhanced role today: 1) a “big data” approach in in order to
provide the detail they need; 2) coherent pricing; 3) integration
across all business lines; 4) agnostic formatting, because while
treasury is at the centre it should not be a bottleneck; and 5) a
drill down or synthetic view at any level.”
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