Treasury management (or treasury operations) entails

management Management (or managing) is the administration of organizations, whether businesses, nonprofit organizations, or a Government agency, government bodies through business administration, Nonprofit studies, nonprofit management, or the political s ...

of an enterprise's financial holdings, focusing on the firm's

liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quic ...

, and mitigating its financial-, operational- and

reputational risk Reputational damage is the loss to financial capital, social capital and/or market share resulting from damage to an organization's reputation. This is often measured in lost revenue, increased operating, capital or regulatory costs, or destructi ...

. Treasury Management's scope thus includes the firm's collections, disbursements,

concentration In chemistry, concentration is the abundance of a constituent divided by the total volume of a mixture. Several types of mathematical description can be distinguished: '' mass concentration'', '' molar concentration'', '' number concentration'', ...

, investment and funding activities. In corporates, treasury overlaps the financial management function, although the former has the more specific focus mentioned, while the latter is a broader field that includes financial planning, budgeting, and analysis. In

bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital m ...

s, the function plays a slightly different, more integral role, managing also the link between the institution and the

financial market A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial marke ...

s. In both, there is a close relationship with the

financial risk management Financial risk management is the practice of protecting Value (economics), economic value in a business, firm by managing exposure to financial risk - principally credit risk and market risk, with more specific variants as listed aside - as well ...

area. Permjit Singh (2021)
"The Corporate Treasurer Serves as a Financial Risk Manager"

Investopedia Investopedia is a global financial media website headquartered in New York City. Founded in 1999, Investopedia provides investment dictionaries, advice, reviews, ratings, and comparisons of financial products, such as securities accounts. It ...

A company's treasury operation, typically, is under control of the CFO or Vice-president / Director of Finance; and in larger entities is under a dedicated

Treasurer A treasurer is a person responsible for the financial operations of a government, business, or other organization. Government The treasury of a country is the department responsible for the country's economy, finance and revenue. The treasure ...

. Operations are handled on a day-to-day basis by the organization's treasury staff, controller, or

comptroller A comptroller (pronounced either the same as ''controller'' or as ) is a management-level position responsible for supervising the quality of accountancy, accounting and financial reporting of an organization. A financial comptroller is a senior- ...

Corporates

For non-banking entities, the terms ''Treasury Management'' and ''Cash Management'' are sometimes used interchangeably, while, in fact, the scope of treasury management is larger, and encompasses funding and investment activities, as mentioned above. The significant core functions of a corporate treasury department include:

Cash and liquidity management

Cash- and liquidity management is often described as treasury's 'primary duty.' Essentially, a company needs to be able to meet its financial obligations as they fall due, i.e. to pay employees, suppliers, lenders and shareholders. This can also be described as the need to maintain liquidity, or solvency of the company: a company needs to have the funds available that will enable it to stay in business. In addition to dealing with payment transactions; cash management also includes planning, account organisation, cash flow monitoring, managing bank accounts, electronic banking, pooling and netting as well as the functions of in-house banks.

Risk management

The aim of risk management is, generally, to identify, measure, and manage risks that could have a significant impact on the business' goals. In this context, the focus is twofold, ensuring that the company can meet its financial obligations, and ensuring predictable business performance. Treasurers are then tasked, more specifically, with managing: *

Liquidity risk Liquidity risk is a financial risk that for a certain period of time a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price. Types Market liquidity – An asset cannot be ...

: the company is unable to fund itself or is unable to meet its obligations; overlapping the above *

Market risk Market risk is the risk of losses in positions arising from movements in market variables like prices and volatility. There is no unique classification as each classification may refer to different aspects of market risk. Nevertheless, the m ...

: changes in market prices (typically foreign exchange, interest rates, commodities) cause losses to the business *

Credit risk Credit risk is the chance that a borrower does not repay a loan In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay ...

: that a counterparty default causes loss to the business.

Operational risk Operational risk is the risk of losses caused by flawed or failed processes, policies, systems or events that disrupt business operations. Employee errors, criminal activity such as fraud, and physical events are among the factors that can tri ...

- losses to the business due to fraud or error - will sometimes fall under Treasury, although as these risks are not directly financial in nature, they are often delegated to a dedicated team. In many sales- or lending-oriented businesses, credit risk is likewise not in direct scope. Re both, however, Treasury, will exercise some oversight.

Corporate Finance

Looking after contacts with banks and

rating agencies A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may r ...

, as well as discussions with credit insurers and, if applicable, suppliers concerning periods allowed for payment, in conjunction with the procurement of finance, also form part of the treasurer's core business. See and .

Banks

The treasury function is, as outlined, integral to banking institutions. Aastha Tomar (2023)
What is Treasury in Banking
Chris Blake (2023)
Role of Bank Treasury
/ref> Its role arises, essentially, in that the bank receives funding (its liabilities) through customer deposits and issuing senior unsecured debt, often bonds, in the wholesale market, and in turn deploys these funds to its various profit generating businesses (assets). Treasury is then responsible for managing financial assets and liabilities, ensuring sufficient liquidity, and "capitalizing on market opportunities" to maximize profitability. Most large

s thus maintain dedicated Treasury Management

departments Department may refer to: * Departmentalization, division of a larger organization into parts with specific responsibility Government and military * Department (administrative division), a geographical and administrative division within a country, ...

. These will, in turn, operate the following areas or

desks A desk or bureau is a piece of furniture with a flat table (furniture), table-style work surface used in a school, office, home or the like for academic, professional or domestic activities such as reading (activity), reading, writing, or using ...

: * A

fixed income Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the pr ...

money market The money market is a component of the economy that provides short-term funds. The money market deals in short-term loans, generally for a period of a year or less. As short-term securities became a commodity, the money market became a compo ...

desk that is devoted to buying and selling interest bearing securities. * A foreign exchange desk that exchanges currencies as a service to the clients. * A

capital markets A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...

equities Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion t ...

desk that deals in shares listed on the stock market. Critically, Treasury maintains, also, an

asset liability management Asset and liability management (often abbreviated ALM) is the term covering tools and techniques used by a bank or other corporate to minimise exposure to market risk and liquidity risk through holding the optimum combination of assets and liabili ...

(ALM) desk that manages any potential interest rate mismatch — in the specific context outlined — as well as

liquidity risk Liquidity risk is a financial risk that for a certain period of time a given financial asset, security or commodity cannot be traded quickly enough in the market without impacting the market price. Types Market liquidity – An asset cannot be ...

more generally. Here, Treasury is responsible for the key

funds transfer pricing The Fund Transfer Pricing (FTP) measures the contribution by each source of funding to the overall profitability in a financial institution. Funds that go toward lending products are charged to asset-generating businesses whereas funds generated by ...

(FTP) function, that prices liquidity for business lines within the bank; i.e., where funds that go toward lending products ( asset sales teams) are charged a term and risk-appropriate rate, whereas funds generated by deposits (and related) are credited similarly. (See similar re "

risk pool A risk pool is a form of risk management that is mostly practiced by insurance companies, which come together to form a pool to provide protection to insurance companies against catastrophic risks such as floods or earthquakes. The term is also u ...

ing".) Relatedly, the bank’s treasury is usually integrally involved in

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...

management more generally, suggesting which currencies and terms are favorable from a funding perspective and which assets are required to meet various regulatory targets. Re the latter, treasury is tasked with monitoring

regulatory capital A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital ...

under

Basel III Basel III is the third of three Basel Accords, a framework that sets international standards and minimums for bank capital requirements, Stress test (financial), stress tests, liquidity regulations, and Leverage (finance), leverage, with the goa ...

: more especially the capital adequacy-, leverage-, and liquidity coverage ratios, as well as the bank's total loss absorbing capacity. Bank Treasuries will often also support their clients' needs in these areas, through Treasury Management "services" or "products"; depending on the arrangement, they may or may not disclose the prices charged here. Note that a number of independent treasury management systems (TMS) are available, allowing enterprises to conduct treasury management internally. Smaller banks are increasingly launching and/or expanding their treasury management functions and offerings. This is due to: an increased "focus" by banks (after the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

) on the clients they serve best; the availability of seasoned treasury management professionals; access to industry standard, third-party technology providers' products and services - tiered according to the needs of these (smaller) clients; and similar access to

best practice A best practice is a method or technique that has been generally accepted as superior to alternatives because it tends to produce superior results. Best practices are used to achieve quality as an alternative to mandatory standards. Best practice ...

s and staff-training.

References