Reform Bill Throws Commercial Banking Business Into Chaos According to Treasury Strategies
CHICAGO--(BUSINESS WIRE)-- The sweeping financial reform bill passed yesterday by the U.S. Senate threatens to fundamentally change the economics of the commercial banking business and unravel a complex, interconnected system developed over 80 years since the Great Depression, according to Treasury Strategies.
There are many far-reaching measures in the bill, such as the repeal of Regulation Q, which have received little media attention despite their potential to radically alter commercial banking operations and relationships.
“A repeal of Regulation Q would allow for interest payments on business checking accounts. Now banks must re-evaluate their business models and pricing structures,” said Chrystal Pozin, a Principal with Treasury Strategies.
Commercial bank divisions must act now to address the threats and opportunities created by the bill’s far-reaching measures, which include this repeal and the extension of unlimited FDIC insurance.
“Meanwhile, corporations must re-evaluate their approaches to counter-party risk management and short-term investment policies,” added Pozin.
Given that commercial deposits could now earn interest, corporations must re-evaluate the value of investing in alternative instruments. With bank deposits already at an all-time high of $1.3 trillion, it’s likely that even more cash will be directed to banks.
Other measures within the bill point to the creation of an enormous bureaucracy that will keep the industry in regulatory chaos for years to come. Estimates range from 234 – 533 new rule-making provisions that are assigned to 10 separate regulatory agencies. It will take years for these bodies to finalize their rules governing the financial industry. Those rules will inevitably create conflicts, overlap and leave gaping holes in the U.S. financial regulatory regime.
“In a highly interconnected, global financial system, regulatory changes made in the U.S. cannot be considered in a vacuum,” said Anthony J. Carfang, Partner and Director of Treasury Strategies. “Provisions in this bill will directly interfere with the several trillion dollars of funds flowing through the global financial system each day.”
Carfang continued, “This regulatory upheaval comes at a time when the financial industry is already operating in a distressed economic environment. This bill only compounds the uncertainty created by the sovereign debt crisis, European bank stress tests and Basel capital requirements. The consequences – both intended and unintended – will take years to be fully understood.”
Treasury Strategies has studied the changing regulatory environment for many years and understands how these changes will affect both our financial services and corporate clients. The time is now for financial industry executives to learn the provisions in this bill and develop new business plans that will ensure they successfully navigate through the coming chaos.
About Treasury Strategies, Inc.
Treasury Strategies, Inc. is the leading Treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions. For more information, please visit www.TreasuryStrategies.com.
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Treasury Strategies, Inc.
Kyle O’Connor
312-628-6927
Kyle_Oconnor@TreasuryStrategies.com
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