QE: investment stimulus, cheaper corporate financing or pension deficit booster?

The problem with any macro-economic stimulus is that a large economy is a mix of small economies. The problem the UK shares with other western economies is that the acceptable stimuli have become few. What’s available in the arsenal? The Bank of England has base rates, quantitative easing (QE), a target consumer price inflation (CPI) of 2% (which is currently 0.6%), and a commitment to a stable financial system. The government of the day can tinker with tax rates and/or overspend (i.e. borrow). These are simple and crude weapons. Investment decisions are not simple or uniform in their nature. UK business

Currency devaluations – what should the treasurer do?

There has been a lot of comment in the press recently concerning the topic of how the movement of exchange rates can influence economic growth in an economy.

In broad terms a country with a weak currency should be more competitive compared to one with a strong currency, mainly down to lower labour costs. Accordingly a weak currency should boost exports and hence economic growth, something which almost every country seeks. As a result governments may adopt policies designed to weaken their currency and so provide competitive advantage.

Subsidised banking products

In the UK it is possible, as an individual, to have a basic bank account for free (as long as you stay in credit). The concept was introduced by Midland Bank in 1984 and was followed by almost all the other providers. The concept was, of course, that free banking would entice customers in and then that provided an audience to sell to. So customers who opted for free banking would use savings products, loans and mortgages, as well as insurance products such as house insurance, endowments, etc. The bank also had access to interest free deposits. The model is

Current trends in bank relationship management

This faculty often considers the role of banks for the corporate user and borrower, both generally and also from specific aspects of trends in finance.

Corporations cannot do without banks, they are needed for many aspects of business, including money transmission, market making, broking , trade support products, asset finance, bond issuance, M & A, as well as their traditional role as deposit takers and vanilla lenders. They are under particular pressure at the moment from many directions:

Corporations as lenders / supply chain finance

Banks are very much the part of the financial universe under the spotlight at the moment. There are so many changes affecting them, from regulation, retail separation and political pressure on wages and bonuses, to euro zone pressure and recessionary risks of lending, that we are all becoming scared that they will not be able to act like banks and lend to corporations. Much effort, including from the ACT, is therefore to understand the implications of this and one path to follow is to investigate how non bank corporations might fill the gap left by bank lending.

The treasury of the future, implications of change

We continue the theme from last month where we considered the influences of changes in the financial services sector on treasury management. These included:

The Implications

We now consider the implications of these changes which are probably along three dimensions:
  • Role of the treasurer
  • Treasury design
  • Treasury career

We should start regulating as though the real economy matters

Andy Haldane, Executive Director for financial stability of the Bank of England, in his 2011 Wincott Memorial Lecture* spoke about the causes of the banking crisis and how to reduce the frequency and extent of future crises. As usual from Andy, a well presented historical and economic analysis well worth anyone’s time to read. But, in answer to questions, Andy made another very important comment. He said that “We should start regulating as if the real economy matters.” Hear, hear. Surely full support to that from everyone involved in corporate treasury.

Treasury of the future

This month’s faculty will look at the treasury of the future, one view of how it might look as the newly regulated world of finance starts to bite. This is only one view and things may turn out differently but as always in forecasting, it is often the very act of forecasting that makes you think about the future, what might or might not happen, and prepare for it.