Liquidity Strategies for Financial Institutions and Corporates: The Art of Cash Management

Monday, 30 January 2012 15:29
In a credit-squeezed market, cash and liquid instruments rule - find out how to drive the effectiveness and efficiency of your company's cash 



The focus on cash has intensified since the financial crisis and company cash balances have reached record levels.

In crisis-riddled markets, Financial Institutions and Corporates need to ensure cash is available to deal with whatever happens in the market.


Five key events have pushed cash management to the forefront of attention:

1.       Liquidity concerns and cash cushions;

2.       No growth economies (especially in Europe);

3.       Tight credit markets;

4.       The recapitalisation of banks in order to meet new global standards (Basel III);

5.       New legal regulations and compliance.

Liquidity Strategies for Financial Institutions and Corporates: The Art of Cash Management is a best-practice guide through the financial storm for Chief Financial Officers, Treasuries and Cash Managers.

With greater insight into banking, payment and trade infrastructures, better decisions can be made to drive the efficiency and effectiveness of cash.

Written by John Bertrand, a veteran banker with 30 years' experience in banking, cash management, payments and technology at Citibank, IBOS, ALLTEL, Misys and Admertec/Ceptum in the US and the UK.


Liquidity Strategies for Financial Institutions and Corporates is superb. For the first time there is a book that explains banking and finance in everyday language. Easy and simple to read and understand. It is ideal for CFOs and others needing a practical understanding of finance and how it affects their companies." Thomas E Jones, former Vice Chairman of the IASB

Publication date: April 2012
ISBN 978-1-907720-47-5

Download full Contents pdfhere

Download sample pages pdfhere

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Each chapter starts with Key Questions for the CFO, Treasurer or Cash Manager and a Key Points Summary




Managing cash flow

Banks create their own cash cushions

The move towards non-banks


1 The three levels of cash management


Domestic cash management

Bank charges on the rise

Domestic cash management stages

Stage 1: Simple bank account

Stage 2: Bank account with technology

E-banking now the preferred approach


Stage 3:Bank account with investment rules

Stage 4: Bank account with overdraft facilities

Stage 5: Multiple banks with more than one bank account in the same currency

Complexity increases as company grows

Technology and processes

Competitive bidding for banking business

International cash management

Stage 6: International cash management  services with more than one currency account

Cash pooling to notional pooling

Cash pooling considerations

Notional pooling

Notional accounting

Payment infrastructure

Global cash management

Stage 7: Global cash management

Reducing transaction volumes


Geographic approach

Nordic region vs. eurozone

Rules on inter-company lending

The technology that makes cash management work at banks

The future


2 Compliance: new rules and regulations for bank accounts

Compliance started in earnest in 2001

Ongoing AML

Politically Exposed Persons

Due diligence by the corporate

Due diligence by the bank

High risk criteria


Customer Due Diligence/Know Your Customer

Anti Money Laundering

The money laundering schematic

Risk-based assessment

Customer screening

Single view of the customer business within the bank (CRM)

Account monitoring

Bank applies compliance testing to bank accounts

Bank applies compliance to payment messages

Additional regulation

The future


3 Bank account structures

How safe is your bank balance?

Stability ratings and stress tests

Bank account fees

Electronic Bank Account Management (eBAM)

Extensible Markup Language (XML)

Banking mandates

Value dating

Credit attached to the bank account

Branch foreign exchange rates

Bank accounts for third party cash administrators

Client cash structure: today and tomorrow

Benefits of client cash

Bank – today (with little automation)

Bank with third party accounts (full automation, complete STP)

Intermediary – today

Intermediary with virtual accounts

Corporate employing third party accounts

The future


4 Liquidity management and cash cushions

Liquidity management

Intraday liquidity in clearing and settlement

Pricing intraday liquidity

Reduction in bank lending capacity

Credit scoring

Degrees of liquidity

Cash and the flight to safety

Cash cushions

Stress testing

The future


5 Putting cash to work

Earning interest

Islamic banking

Linking the savings module to the bank account

Outside investments

Forecasting cash flows

Predicting revenue and expenses

Making money on the money

The future


6 Risk and interest structures

The investment risk pyramid

Base level investments – no risk to principal and highly liquid

Appreciating cash investments – up to 15% market risk and highly liquid

A strong currency


Speculation – up to 50% market risk

Gold – the universal currency

The future


7 The credit ladder

Charges for credit facilities

Credit rating agencies

Banks and financial institutions’ scoring techniques

Intraday overdrafts

Large value payments

Other credit techniques

Asset based financing

Sale and leaseback

Leasing other assets

Loans against equity

Inventory financing

Government return financing

Financing via other collateral

Credit default swaps

The future


8 The investment pyramid versus the credit ladder

Net Interest Income (NII)

Comparing the pyramid with the ladder

The future


9 Payments

Creating harmonised payments

Float and timeframes

Same/next day funds transfers – urgent payments

Other payment methods


Automated Clearing House (ACH) payments

ACH for non-urgent payments

Direct debit

SEPA Direct Debit (SDD)

Local direct debit schemes vs. SEPA

Payment solutions for corporates



Warehouse accounts

International payments for corporates

Correspondent banking payments

Other international payment options

The banking infrastructure for cross-border payments

Third party account managers

Payment fees

Real Time Gross Settlement (RTGS)

The credit card process cycle – key players

Sample transaction and stakeholders

Prepaid cards

Near Field Communication (NFC) payments


The future


10 Foreign exchange

International cash management and FX

Managing foreign exchange options



Regulatory changes

Other options


Interest rate swaps

Currency exposure

Buying and selling FX

Credit line from the bank

Spread and commission-based pricing

Continuous Linked Settlement (CLS)

Automated FX (e-trading)

FX roles

The administrator

The dealer

The trader

The customer

The compliance officer

The support team

Currency movements

Margin, or increased leverage

Comparing euro performance

Asian currencies and the RMB

The future


11 Supply chain management

The supply chain and liquidity




Supply chain management developments



Size of the supply chain

Top 20% of companies achieve efficiencies

The physical supply chain

The electronic financial supply chain

Technology creates efficiency

Logistics and the supply chain

Supply chains and the role of the financial services industry

Automation and standards

Invoice financing


Global adoption of e-invoicing

Changing supplier and buyer processes


Bill payment in the US

The future


12 Illiquid management


Liquidation in the UK

The winding-up process


Pre-pack administration


13 Case study: Nordea


Client base

Cash management products

Group accounts

Sweeping and topping

Zero balancing

SWIFT statements

Value dating and currencies

Direct debit

Same-day cross-border money

Inter-company payment

In-house bank for a Corporate Treasury


Mobile banking




Working capital

Achievements and initiatives

Client case study –­ Tele2

Tele2’s treasury centre


14 Case study: Citibank


Cash management products

CitiDirect (e-banking)

CitiDirect BE Mobile


WorldLink Payment Services reporting and tracking online

Group accounts

Citibank Electronic Cheque Deposit (ECD) in the US


Notional pooling

Data aggregation  


Target balancing


Electronic supply chain

The Citibank Electronic Account

Citibank e-Billing


Pricing on 130+ currency pairs

Outsourcing treasury functions

Online investment

Liquidity desks

Achievements and initiatives


15 Case study: HSBC


Cash management products

Exposure management

Receivables solutions

Currency dealings as and when

Actively managing the exposure

Interest rate offerings in other countries

Cash concentration and multi-currency receivables

Online banking – Direct Connect


HSBCnet Mobile

Achievements and initiatives

Client case study – Korean Air


16 Case study: Wells Fargo/Wachovia


Cash management products

Inefficient manual processing

No real-time visibility

Inaccurate cash forecasting

Increased exposure to fraud

Services for multinational corporates (MNCs)

Cash management consulting for multinational corporations


Cash collection (USA)

Remote Deposit Capture (RDC) for cheques

Direct deposits

Pre-authorised payments (direct debit)

Sweep investments for corporates

Global cheque clearing

Lockbox – the collection of cheques

Client case study – Bumble Bee Foods


Tables and figures

Table 1.1: Features of UK bank accounts 2009, 2010

Table 1.2: EIU 2010 digital economy rankings and scores

Table 3.1: Deposit protection schemes

Table 5.1: Wells Fargo economic forecast 2011

Table 7.1: Charges for credit facilities

Table 7.2:  The credit ladder

Table 7.3:  Credit rating agencies ratings guide

Table 9.1: Payment systems comparison

Table 9.2: Multipurpose Pan-European Direct Debit

Table 9.3 Prepaid card fees

Table 9.4: The reconciliations process

Table 10.1: Example of currency option pricing based on basis point spread.

Table 10.2: Euro changes as reported by the European Central Bank

Table 13.1: Report for external sales less exchange rate fluctuations


Figure 1.1: Simple domestic cash management

Figure 1.2: Account opening process

Figure 1.3: Simple bank account – domestic

Figure 1.4: Simple bank account – international

Figure 1.5: More than one company bank account (single currency) – simple

Figure 1.6: More than one company bank account (single currency) – alternative  

Figure 1.7: International cash management

Figure 1.8: Cash pool with notional pooling

Figure 1.9: Bi-lateral netting

Figure 1.10: Multi-lateral netting

Figure 1.11: Bi-lateral and multi-lateral netting

Figure 1.12: Payment and core banking landscape

Figure 1.13: Core banking systems and payments landscape

Figure 2.1: Ongoing due diligence

Figure 3.1: eBAM - opening a bank account

Figure 3.2: eBAM – account maintenance

Figure 3.3: eBAM – account closure

Figure 3.4: Value dating

Figure 3.5: Value dated transactions

Figure 3.6: Branch foreign exchange rates

Figure 3.7: Virtual account model

Figure 3.8: Deposits to MFI by non-financial and other financial sectors

Figure 4.1: Liquidity management for a bank

Figure 4.2: Intraday money flows

Figure 4.3: 30-day cash outflows

Figure 5.1: Bank account with savings account

Figure 5.2: Outside investments

Figure 5.3: Company balance over time

Figure 5.4: Forecasting company balances going forward (1)

Figure 5.5: Forecasting company balances going forward (2)

Figure 5.6: Interest rates vs. time (UK, December 2011)

Figure 6.1: The investment pyramid

Figure 6.2: Gold – London PM fix 2000-2011

Figure 7.1: Sovereign credit default swaps January 2010– November 2011

Figure 8.1: The investment pyramid vs the credit ladder (1)

Figure 8.2: The investment pyramid vs the credit ladder (2)

Figure 8.3: The investment pyramid vs the credit ladder (3)

Figure 9.1: Cheque (paper) payment flow

Figure 9.2: ACH payment

Figure 9.3: Direct debit payment

Figure 9.4: SEPA Direct Debit

Figure 9.5: Banks’ payment solutions for corporates

Figure 9.6: Warehouse account process (1)

Figure 9.7:  Warehouse account process (2)

Figure 9.8: Foreign exchange payments

Figure 9.9: Options for international payments – independent domestic banks      

Figure 9.10: Options for international payments – domestic banks in an Association        

Figure 9.11: Options for international payments – international bank

Figure 9.12: Traditional cross-border payments

Figure 9.13: Direct debit to a virtual account

Figure 9.14: Direct debit from a virtual account

Figure 9.15: Real Time Gross Settlement process

Figure 9.16: The credit card process cycle

Figure 9.17: Integrated and hosted virtual account solutions

Figure 9.18: Corporates – the paper trail

Figure 9.19: Corporates automated using virtual accounts

Figure 11.1: Supply chain growth

Figure 11.2: Supply chain management

Figure 11.3: Sales days outstanding

Figure 11.4: Supply chain financing for large companies

Figure 11.5: Accounts receivable financing

Figure 11.6: Invoice factoring

Figure 11.7: Invoice discounting

Figure 11.8: Paper vs e-invoicing

Figure 15.1: Korean Air’s FX outsourcing solution



About John Bertrand

John's expertise in banking, cash management, payments and technology was gained over 30 years at Citibank, IBOS, ALLTEL, Misys and Admertec/Ceptum in the USA and UK.


In this time he created and implemented technology in front, middle and back offices of banks, in addition to developing electronic access options for the needs of corporations and retail customers.  This included redefining core banking for Misys  (300 banks), ensuring long-term revenue. He has provided and developed cash management consulting, netting schemes, third party cash management, pooling and foreign exchange.


John has been involved in mergers and acquisitions in more than 10 banking/software transactions that included cloud-based solutions. One transaction in the cloud now represents 9% of Misys profits.

John raised capital, added mezzanine financing, leasing and invoice factoring together to create Ceptum Limited, a potential bank, now with $10 million in profitable assets and with no debt.

He has worked with the UK (FSA) and Swedish (FI) banking and finance authorities to create a de nova bank.