In writing the Managing corporate liquidity and bank liabilities: the changing corporate liquidity management ecosystem thought leadership paper, EBA’s LMWG objectives were to:

• identify and understand client needs and trends within the corporate liquidity management ecosystem; and
• understand how both regulations and digitalisation are affecting this ecosystem, from both the corporate and bank perspectives.

They observe that corporate liquidity management is an ecosystem where corporates and banks are interdependent:

Source & Copyright©2018 - EBA

Recent regulation, most importantly Basel III, has impacted the balance of this corporate liquidity management ecosystem, introducing these changes affecting both sides:

• Banks have had to adjust the incentives within their businesses to reflect the requirements of Basel III, notably the requirement to distinguish between operational and non-operational corporate deposits, which has had consequences for investors of corporate cash. 
• Corporates: “the lack of certainty over the future of notional pooling may also have far- reaching consequences for the many corporates that rely on the service to manage their company cash.” 

Identifying corporate liquidity needs

LMWG invited eight corporates to share their objectives, challenges and daily liquidity management practices. Based on these discussions, tthey identified a range of factors which influence the needs of corporate liquidity. This analysis considered:

Source & Copyright©2018 - EBA 

Unsurprisingly, they found that there are three key areas in which corporates rely on banks when managing their liquidity: bank technology, corporate cash investments, and cash pooling.

Conclusions

After this comprehensive review the LMWG concluded that:

1. Banks need to develop their liquidity management solutions and to consider whether they can develop new solutions with other banks and fintechs
2. The implications of Basel III for investment of corporate cash
   • Banks with a higher level of corporate deposits rely more on operational cash for the purposes of LCR and NSFR than banks with higher levels of retail deposits.
   • Banks are currently interpreting the guidelines differently, in terms of both their distinction between operational and non-operational deposits and how they execute their FTP policy in light of the new regime.
   • Corporates are not generally aware of the ways banks view and treat their current accounts and demand deposits. 
3. The future of notional cash pooling
   • “There is no consistent regulatory approach to notional pooling, making it difficult for banks and their corporate clients to understand the potential liquidity management options. Differences between banks exist cross-region, within region or even within the same country.
   • Basel III, particularly the leverage ratio, may affect banks’ commercial ability to offer certain products to their corporate clients. While the Basel Committee issued a clarification on notional pooling in December 2017, it is still uncertain how this will develop within the EU as the guidelines need to be implemented into local legislation, potentially via a new EU directive (CRD V). Even if CRD V does relax the framework, the final treatment will not be clear until it is implemented by all member states.”

Overall they recommended lots of education between the banks and their customers, as there is still much confusion on many aspects of Basel III and notional pooling. 

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CTMfile take: Nothing has changed