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EMIR REMIT

Changing environments

Market changes

As well as the increasing the volatility of earnings from operating activities and presenting new challenges for corporate management, the last few years have brought tremendous upheaval on the financial markets. Whereas major banks were regarded as practically credit risk-free counterparties before 2007, even some of those top names subsequently experienced serious liquidity problems. . The conclusions to be drawn from this difficult period also have an impact on corporate exposure to credit riskand on approaches to liquidity management.

 

There is now much more emphasis on the creditworthiness of banks, even when corporates simply wish to invest cash surpluses over short periods. It is vital to diversify risk across a number of banks to limit potential losses in the event of a bank failure. Whether you need to analyse sources of potential credit risk within your business, develop new techniques to evaluate creditworthiness, implement monitoring processes and early warning systems, or manage credit risk either using passive limit systems or through the active selection of suitable tools, you can rely on d-fine's wide-ranging experience of banking and industry. We can help you to set up an effective system of credit risk management.

 

During the period when banks themselves were experiencing liquidity problems, it proved more difficult for industrial firms to obtain new financing for their ongoing business or to extend credit agreements that were due to expire. In response, industrial companies began to make changes in the way they manage their liquidity needs. These changes involve maintaining a bigger liquidity reserve from the company's own resources, partly through improvements in working capital management and partly through the retention of profit reserves. At the same time, corporates are looking to identify other potential sources of financing to achieve a more diverse mixture of bank credit and capital market instruments. d-fine can help you to develop a liquidity management strategy that matches the needs of your company and your business model.

 

More recently, there has been a renewed emphasis on the interaction between different risk types (see „Banks and corporates: The efficiency of liquidity transmission“), especially as a result of new regulatory initiatives.

Impact of regulation and legislation on financial management

Directly or indirectly, the regulation of banks has an impact on the business relationships between those banks and the corporate sector. Current regulatory proposals such as Basel III and EMIR already have an impact on which deals are actually closed and on what terms. The obligation to settle derivative transactions through central counterparties and the incentivisation of (cash) collaterals for derivatives through increased equity requirements mean that even corporates are having to generate additional liquidity. It can therefore make sense to review your strategy to ensure that derivatives are used in the most effective way to hedge financial risk with due regard for the associated costs. d-fine keeps a close eye on all regulatory developments and can help you to devise an appropriate strategy for your company.