Former Federal Reserve chairman Ben Bernanke opened the 2014 AFP conference with a riveting litany of insights about the 2008 financial crisis. He touched on behind-the-scenes events and issues during one of the bleakest periods of American financial history. Any new book from him should prove to be a must-read for those interested in the inner workings and handling of these extraordinary events. History, of course, will serve to determine if the path taken during the crisis should be deemed savior or elixir. Regardless, the man at the helm exhibited composure and intellect.
The legacy of the financial crisis and the subsequent upswing in financial regulations is still being felt. The recent Basel III liquidity coverage ratio (LCR) clarifications are the most recent regulatory crucible that senior bank managers are grappling with. It will become clearer in the next few months how they will adjust their product portfolios through disinvestment of products or customers' usage patterns that cause conflict with the LCR requirements.
While LCR implications have been top of mind, the tone at AFP was far more positive and forward-looking than in past years, when bankers viewed upcoming years as a period of increased discontinuity. For example, the dialogue around the Federal Reserve’s faster payments vision has prompted senior managers to rethink the implications of faster payments on their product infrastructures. The Fed’s new payment vision, NACHA’s speedier automated clearing house payments, and the Clearinghouse’s intent to offer its own alternative to faster payments has the CEOs of the 20 largest banks’ attention.
[For more on the Federal Reserve's faster payments initiative, check out: US Payments Innovation: Here Come the Feds!]
The Clearinghouse announcement required these CEOs’ approval. As one executive relayed, “My CEO wants to know where the bank stands, how much will it cost, and where is the business case.” As a result, treasury product managers are rethinking their near- and long-term investment plans to ensure they align with a changing payments landscape. The challenge will be to determine if near-term investments will prove obsolete in terms of the longer-term vision of the Fed, Clearinghouse, and NACHA.
Although any new payments infrastructure is years away, it is not too early for banks to begin organizing around what’s considered an “inevitable initiative.” Faster payments will redefine risk and security requirements. As a banker noted, “Speed kills” when it comes to irrevocable faster payments. With millions of new consumer and business participants potentially interacting in a faster payments environment, absolute security is vital. All of these and other related issues must be planned by treasury services banks to remain a viable participant in a new and evolving payments landscape.
When asked what keeps them up at night, senior treasury bankers cited the risk associated with treasury services. A banker mentioned a dialogue with his organization’s enterprise risk manager. When he asked the risk manager if he slept well at night, he replied, “I sleep like a newborn; I wake every hour and cry for a bottle (of what, he did not say).” With Internet security breaches now routine, the risk profile of treasury services becomes a daily and increasing concern.
As confusing and stressful as the landscape might be, the senior treasury services view today’s environment as much improved from that of five-to-six years ago. The challenge lies in charting a path for their organizations in this evolving environment.
Lawrence F. Buettner is a senior vice president at Wausau Financial Systems, which provides receivables technology for financial institutions. He has 30 years of experience in financial treasury management and was a senior vice president at First Chicago. View Full Bio