Functions of a Treasury and Blockchain
- 1. Presentation Title Lorem ipsum dolor sit amet, consectetur adipiscing elit. Name- Varchasv Yagnik Membership No. – 172461 Batch No.- 48th Location - Mumbai
- 3. Agenda What is a Treasury? Functions of Treasury Critical Risk Areas Operations of a treasury 3
- 4. 4 • Banks help their customers manage their money, but who manages a bank's money? • How does a bank decide where to invest its capital across its business and how much to hold back in reserve? • How does a bank make sure that each of its business areas has enough cash to serve its clients and function efficiently while keeping enough cash available centrally at all times to cover any unexpected market developments? Have you ever thought upon?
- 5. 5 Lorem ipsum dolor sit amet, consectetur adipiscing elit. Treasury
- 6. What DoesTreasury Department Do in a Bank? 6 Asset Liability Management • The primary function of the treasury department of any banks is to ensure that its assets match its liabilities in every possible way. It is the job of the treasury department to prepare various financial models which help on forecasting the amount of net interest income that the bank stands to make if different economic scenarios play out. Products • The Treasury offers customers risk coverage and investment solutions for the most simple to the most complex products (structured products) and for all kinds of financial assets – generally fixed income, interest rates, equities and exchange rates, and in some financial institutions, also commodities. Capital and Reserve Requirements • Since the treasury department is basically in charge of the bank’s balance sheet, it is also responsible for setting aside reserves to meet the reserve requirements prescribed by the Central Bank i.e. RBI.
- 7. 7 Fund Raising / Investments • Treasury departments keeps a close watch on the funding requirements and determine when additional cash is needed and raise funds or allocate excess cash received to various types of investments, depending upon their rates of return and how quickly they can be converted into cash. Cash Forecasting • The treasury department compiles information to create ongoing cash forecasts. Risk Management • The department uses various hedging and netting strategies to reduce risk related to changes in asset values, interest rates and foreign currency holdings.
- 8. 8 Liquid Investments in Government Securities • Treasury departments at banks are also in charge of maintaining a certain portion of their portfolio in highly liquid government securities. This lends safety to the bank’s portfolio while simultaneously creating a highly liquid market for government securities. Liasoning with Regulatory Bodies • The treasury department of banks is highly regulated. Since they are the ones that are supposed to maintain the capital adequacy ratios and reserve ratios, they are also the ones that are supposed to liaise with regulatory agencies on such issues. Executives from the treasury department are usually invited by the government when decisions regarding the banking industry need to be made. Such executives also lobby on the industry’s behalf if adverse regulations are put into place. Disaster Management • The treasury operations of any bank are responsible for managing its operations in the event of a disaster. Thus, to be prepared for the same, the treasury department has to anticipate the risks that can materialize over time.
- 9. 9 Comprehensive Chart of Functions ofTreasury in a Bank What does a Treasury do? Funding Trade Management Finance / Accounting Cash Management Exposures + Cash Management Investments Funding Long term Borrowings ST Borrowings Cash Management Liquidity and visibility Forecasting Exposures+ Risk Management Set policy Identify exposures Identify actions Trade Management Front office execution Middle office controls Limit, checks and balances Finance/Accounting Maintain books and records Valuations Investments Optimize cash balance Risk/return liquidity trade off Limit, checks and balances
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- 11. Major Risks • Credit Risk • Market Risk • Operational Risk Other Significant Risks • Liquidity Risk • Business Risk • Reputational Risk Unrelated Risks • Systematic Risk • Moral Hazard Critical Risk Areas of Treasury in a Bank 11
- 13. WhyTreasury Operations in Bank? 13 To Meet Statutory Requirements: SLR CRR To raise resources at competitive rates from domestic and Global Markets To deposit surplus funds profitably To remove asset liability mismatches To hedge open positions (for mitigating interest rate/exchange rate risks) To benefit from daily fluctuations in the financial market through trading activities
- 15. 1515 What is Blockchain? • The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value. Limitations of Existing Model • Current banking system largely based on SWIFT and its messaging system, which was invented in 1970’s. • Using this system, which relies on one-way messaging, cross-border payments take 3-5 days on average to complete, often fail, and are not transparent – the beneficiary does not know when the payment will arrive, or exactly how much will be charged for its delivery and it’s very expensive too. Impact of Blockchain • An enterprise solution developed for Banks by Ripple, called xCurrent, uses a two-way messaging system between the sending and receiving bank. • When a payment is initiated, all of the information regarding that payment – including KYC data, bank fees, and compliance information – is sent to the beneficiary bank BEFORE the payment is delivered. • If any information is missing, the payment is halted and the sender can be notified that they need to provide additional transaction detail. • The primary benefit is a faster, more transparent, and more certain payment experience, is the improved ability to manage global liquidity. Knowing exactly when a payment will reach a supplier, distributor, or manufacturer, as well as the fees associated with each payment, can free up crucial liquidity, drive down the cost of doing business, and increase treasury’s ability to maintain visibility and control over cash.
- 16. 16 Your Key Performance Indicators (KPI’s)
Editor's Notes
- #7: Asset Liability Management (ALM) can be defined as a mechanism to address the risk faced by a bank due to a mismatch between assets and liabilities either due to liquidity or changes in interest rates. Liquidity is an institution’s ability to meet its liabilities either by borrowing or converting assets. Apart from liquidity, a bank may also have a mismatch due to changes in interest rates as banks typically tend to borrow short term (fixed or floating) and lend long term (fixed or floating).