When the previously global banks need support from their own central banks, the global strategy becomes local. They need to lend the money in the central bank’s country otherwise it does not make sense. We are starting to see this protectionism everywhere and it’s pure logic.
What does this mean for your funding strategy? If you have centralised your funding in the treasury at corporate headquarters, you will probably find yourself with fewer banks to borrow from. ‘Foreign’ banks leave you to take care of the needs of their home country. This may create a lack of banks to borrow from and a too high concentration factor, especially in many of the small countries in Europe.
A potential strategy I have started to discuss with treasurers is to decentralise funding. For example, if you have your headquarters in a European country and large operations in the US, divide the funding between the two. In this way, you can tap both regions for capital. We need to embrace protectionism and make it work in our favour.
When it comes to the relationship between Europe and Britain – uniformity isn’t a word that currently springs to mind. And that’s not just a reference to Brexit. Whilst the Europe and Britain do find themselves in the midst of a political break-up – their monetary policies are also showing signs of divergence.
Europe’s introduction of the General Data Protection Regulation (GDPR) next May will have implications for businesses around the world and US corporates should start getting ready if they haven’t already done so.
As anticipated, US organisations exited prime money market funds en masse following last year’s SEC reforms. AFP’s latest Liquidity Survey indicates what it will take to encourage them back.
The statement issued by the bank also suggests that fiat currencies are superior, due to their price stability.