Expanding Treasury's Scope and Value: The In-House Bank

The term “in-house bank” carries a variety of meanings. On one end of the
spectrum, it simply refers to the ability of an organization to provide basic
internal funding to its subsidiaries; on the other end, it represents a complete
banking and financing arm of an organization that performs much like a third
party banking institution, including ‘pay on behalf of’ and ‘receive on behalf
of’ structures. Regardless of meaning or use, implementing elements of an
in-house bank can help Treasury add value to the organization.

There are several techniques for Treasuries to add value. Automating routine
tasks such as bank statement retrieval, cash reconciliation, and cash
positioning are just a few common methods used by corporate Treasury to redirect staff to more value-add activities such as strengthening controls, evaluating bank fees, ensuring debt covenant compliance or identifying and analyzing strategic objectives. But forward thinking corporate Treasuries are looking to further leverage automation as a conduit to create, and in some cases, increase internal financial services provided to the rest of the organization – they are embedding features of an in-house bank.

Intercompany management is a logical first step that can become notably more
successful through the implementation of an in-house bank strategy. Proficient
capture of intercompany transactions, both receipts and disbursements,
facilitates the efficient trading of financial flows between internal entities,
which becomes the foundation for a full in-house bank. The next provision of an
in-house bank typically occurs within a Treasury’s trading operation.
Centralizing, netting and trading interest and FX instruments through an
in-house bank allows an organization to aggregate positions and efficiently
disburse the instruments, asset or liability back down through the organization
structure. The result of centralized trading is the transfer of FX and interest
rate exposure management from the subsidiaries to the in-house bank, thus
enabling centralized hedging programs. Additional benefits afforded by an
in-house bank include:

• Optimized global cash concentration/pooling and cash visibility
• Managed subsidiary funding
• Improved interest rate and currency risk management
• Reduced bank fees
• Strengthened compliance and controls

The spectrum of in-house banking is broad and for most organizations that are
entering the world of banking, this is intimidating. But the beauty of an
in-house bank is that it offers multiple levels of implementation and each
element provides benefit. You can start small – for example, with intercompany
transactions, and then grow the offering to provide highly effective and
efficient advisory and transactional services that will undoubtedly create
organizational value and sustain organizational strategic goals.

Does your corporate treasury also function as an in-house bank? If so, what
are some of the benefits you’re realizing?