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Banking Relationship Concerns (4)

Will the Future Bring Systemic Changes?

Throughout the industrial and information ages, our financial system has depended on access to credit, and the free market has generally done an adequate job in assigning funds to creditworthy users. When subsidies have been needed, the government has created various loan guarantee agencies for specific sectors that need support—for example, farming, housing, education, and small business. These situations involve activities deemed essential to our long-term economic security that are unable to compete on a “level playing field” with more robust borrowers.

Now that the capital rationing problem has reached the doors of large corporations, it is unlikely that political support will develop for governmental solutions. In the absence of severe dislocations, treasurers should not realistically expect a resumption of legislated restrictions on banking.

TIPS & TECHNIQUES—Banks’ Defensive Strategy

The days of cheap credit are over. Banks have to make enough return on the entire business “partnership” or they will not be interested in the business. A defensive strategy is to:

• Enumerate all of the potential business the company has to offer its bankers, and make sure that it’s all under the control of the treasury department. In recent years, treasurers more often have been side-stepped; see the discussion in Chapter 9, under “Considerations in Bank Selection” (first few paragraphs). Other financial products that could be included are foreign exchange, derivatives, securities trading, custody, trust and agency services, and the issuance of debt and equity.

• Consider which lenders have the capabilities to provide all or most of the services. Begin discussions with these bankers as to their noncredit revenue requirements for credit business. Consider the relationship history, the competence and interest of the bankers, the breadth of industry experience, and the likelihood that the bank will continue to be interested in providing these services should a merger occur.

• Bid the business in the expectation that the business will be concentrated with no more than one or possibly two banks, effectively excluding all of the others.

Taken From : Essentials of Managing Corporate Cash

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