Treasury management
Encyclopedia
Treasury management includes management
of an enterprise's holdings, with the ultimate goal of maximizing the firm's liquidity and mitigating its operational, financial and reputational risk. Treasury Management includes a firm's collections, disbursements, concentration, investment and funding activities. In larger firms, it may also include trading
in bonds, currencies, financial derivatives and the associated financial risk management
.
Most larger bank
s have whole departments
devoted to treasury management and supporting their clients' needs in this area. Until recently, larger banks had the stronghold on the provision of treasury management products and services. However, smaller banks are increasingly launching and/or expanding their treasury management functions and offerings, because of the market opportunity afforded by the recent economic environment (with banks of all sizes focusing on the clients they serve best), availability of (recently displaced) highly-seasoned treasury management professionals, access to industry standard, third-party technology providers' products and services tiered according to the needs of smaller clients, and investment in education and other best practices.
For non-banking entities, the terms Treasury Management and Cash Management are sometimes used interchangeably, while, in fact, the scope of treasury management is larger (and includes funding and investment activities mentioned above). In general, a company's treasury operations comes under the control of the CFO, Vice-President / Director of Finance or Treasurer, and is handled on a day to day basis by the organization's treasury staff, controller, or comptroller.
Bank Treasuries may have the following departments:
In addition the Treasury function may also have a Proprietary Trading
desk that conducts trading activities for the bank's own account and capital, an Asset liability management
or ALM
desk that manages the risk of interest rate mismatch and liquidity; and a Transfer pricing
or Pooling
function that prices liquidity for business lines (the liability and asset sales teams) within the bank.
Banks may or may not disclose the prices they charge for Treasury Management products, however the Phoenix Hecht Blue Book of Pricing may be a useful source of regional pricing information by product or service.
Management
Management in all business and organizational activities is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively...
of an enterprise's holdings, with the ultimate goal of maximizing the firm's liquidity and mitigating its operational, financial and reputational risk. Treasury Management includes a firm's collections, disbursements, concentration, investment and funding activities. In larger firms, it may also include trading
Trader (finance)
A trader is someone in finance who buys and sells financial instruments such as stocks, bonds, commodities and derivatives. A broker who simply fills buy or sell orders is not a trader, as they are merely executing instructions given to them. According to the Wall Street Journal in 2004, a managing...
in bonds, currencies, financial derivatives and the associated financial risk management
Financial risk management
Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. Other types include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc...
.
Most larger bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
s have whole departments
Departmentalization
Departmentalization refers to the process of grouping activities into departments.Division of labour creates specialists who need coordination. This coordination is facilitated by grouping specialists together in departments....
devoted to treasury management and supporting their clients' needs in this area. Until recently, larger banks had the stronghold on the provision of treasury management products and services. However, smaller banks are increasingly launching and/or expanding their treasury management functions and offerings, because of the market opportunity afforded by the recent economic environment (with banks of all sizes focusing on the clients they serve best), availability of (recently displaced) highly-seasoned treasury management professionals, access to industry standard, third-party technology providers' products and services tiered according to the needs of smaller clients, and investment in education and other best practices.
For non-banking entities, the terms Treasury Management and Cash Management are sometimes used interchangeably, while, in fact, the scope of treasury management is larger (and includes funding and investment activities mentioned above). In general, a company's treasury operations comes under the control of the CFO, Vice-President / Director of Finance or Treasurer, and is handled on a day to day basis by the organization's treasury staff, controller, or comptroller.
Bank Treasuries may have the following departments:
- A Fixed IncomeFixed incomeFixed income refers to any type of investment that is not equity, which obligates the borrower/issuer to make payments on a fixed schedule, even if the number of the payments may be variable....
or Money MarketMoney marketThe money market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit,...
desk that is devoted to buying and selling interest bearing securities - A Foreign exchangeForeign exchange marketThe foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
or "FX" desk that buys and sells currencies - A Capital Markets or Equities desk that deals in shares listed on the stock market.
In addition the Treasury function may also have a Proprietary Trading
Proprietary trading
Proprietary trading occurs when a firm trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments, with the firm's own money as opposed to its customers' money, so as to make a profit for itself...
desk that conducts trading activities for the bank's own account and capital, an Asset liability management
Asset liability management
In banking, asset and liability management is the practice of managing risks that arise due to mismatches between the assets and liabilities of the bank. This can also be seen in insurance....
or ALM
Alm
Alm may refer to:* An alpine pasture* Alm , Austria* The protagonist of Fire Emblem Gaiden* A stadium in Bielefeld, Germany, see "Bielefelder Alm"* An historical liquid measure, see aamALM may refer to:* Abundant Life Ministries...
desk that manages the risk of interest rate mismatch and liquidity; and a Transfer pricing
Transfer pricing
Transfer pricing refers to the setting, analysis, documentation, and adjustment of charges made between related parties for goods, services, or use of property . Transfer prices among components of an enterprise may be used to reflect allocation of resources among such components, or for other...
or Pooling
Risk pool
A risk pool is one of the forms of risk management mostly practiced by insurance companies. Under this system, insurance companies come together to form a pool, which can provide protection to insurance companies against catastrophic risks such as floods, earthquakes etc. The term is also used...
function that prices liquidity for business lines (the liability and asset sales teams) within the bank.
Banks may or may not disclose the prices they charge for Treasury Management products, however the Phoenix Hecht Blue Book of Pricing may be a useful source of regional pricing information by product or service.
See also
- Asset liability managementAsset liability managementIn banking, asset and liability management is the practice of managing risks that arise due to mismatches between the assets and liabilities of the bank. This can also be seen in insurance....
- Association of Corporate TreasurersAssociation of Corporate TreasurersThe Association of Corporate Treasurers is the only British professional body specialising in the profession of corporate treasury. Founded in 1979, it is both an examining body, providing a wide range of qualifications for those working in treasury, risk and corporate finance, and a membership...
- Certified Treasury ProfessionalCertified Treasury ProfessionalThe Certified Treasury Professional is a certification awarded by the Association for Financial Professionals of Bethesda, Maryland to individuals who meet eligibility criteria and demonstrate current competency standards measured through the CTP examination.Once a CTP, certificants must abide by...