Le Magazine du Trésorier - n°62 - 2ème trimestre 2008 - (Page 37)
BRÈVES WILL PAYMENTS SAVE THE BANKING INDUSTRY FROM A DEBÂCLE? Back from a big do on international payments in London, I simply must share with you a number of concerns I have both as a citizen and as a corporate treasurer. First, there was a very good paper by an economist on the consequences of the sub-prime banking crisis. « All right, this is not funny, but we’ll get over it, all the more so as the payment industry is at last getting a chance to prove that it works profitably without creating major risks. But banks have to comply with ever more prudential rules, which costs us a lot of money”, the speaker goes went on to say, “and then just look at SEPA, this political initiative which prevents us, the banks, from applying competitive rates to payments in Europe ». What we are not told…. However, what this eminent person forgot to mention is that « we » will get over it thanks to the generous gift of taxpayers who, once again, will pick up the bill for an ever more aggressive banking industry in quest of short term profits. When the Italian government grants Alitalia a loan of 300 million Euros to avoid bankruptcy, there is a general outcry – and rightly so – about state aid: scandalous, illegal!! The UK government – the lead singer for free competition and non regulation - nationalises Northern Rock and floods the market with 50 billion pounds to rescue the sector, and not one single voice is heard, no questions are asked amazing, isn’t it. There is something else our speaker omitted to say : SEPA came into being because the banking industry refused to modernise its payment systems and instruments and to work toward their standardisation. Self-regulation does not apply to a sector where states have no choice but to step in with public money to avoid knock-on effects. I hardly dare imagine what this debâcle might have triggered had there not been a highly stringent prudential framework. British taxpayers surely would have wished it to be even stricter as they would rather see their country invest in better hospitals or improve the fate of less fortunate members of society rather than compensate banks for their bad loans. Do we have to recall that the main economic function of a universal bank is to redistribute retail saving deposits to companies and consumers, not to use them for speculative purposes? Counterparty risk At a more technical level, the presentation failed to point out that the health of the bank a company is working with is crucial for the company as well: just consider the number of SMEs who end in dire straits because banks won’t grant them credit or only at prohibitive rates because of their own liquidity problems. Large corporates are generally better off. But put yourself for a moment in the position of a treasurer who has built his entire international cash management system with a very big global bank whose rating is at risk of suddenly taking a plunge as a consequence of this debâcle. As payment systems are not standardised, we know that in such a situation switching from one bank to another one is impossible: it would take the treasurer several months to assemble an efficient cash pooling with another partner. But the « Treasury Policy », the Board’s guidelines for the treasurer, stipulates that he is not authorised to deposit surplus liquidity with a bank which has a less than solid rating. There lies a considerable risk to the company which it may not have considered; in the best of cases, it has seen it but given precedence to the « cost » element over a risk management based approach. It is probably cheaper to deal with one single global bank. But in finance as in life generally, there is no such thing as a free lunch. Standardise or convert ? I thought I’d heard enough, but no. A little later, another no less eminent banker bluntly said that standardising payments is certainly not the right way forward, as highly powerful and technologically up-to-date format converters are available to all. What he was in fact saying was « just do your payments as you did in the past, we’ll take care of everything else ». « Actually, following this line of thought, do we really still need SWIFT ? » the same banker openly wondered . I must Le Magazine du Trésorier - N° 62
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Le Magazine du Trésorier - n°62 - 2ème trimestre 2008