A corporate in house bank (IHB) is an internal banking operation which replaces external banks for group entities across a range of treasury functions.
In-house banking can help companies of all sizes improve process efficiency, reduce costs and realize greater control over companywide cash. However, there is still resistance to using in house banks within some organizations.
Cost
An in house bank is a structure that replicates the banking services that are provided by an external bank facility. It is used by large global corporations to manage various subsidiaries.
In-house banks are a cost-effective alternative to working with numerous banks internationally. They can also save on foreign exchange or cross-border payment fees.
Companies that operate in regions where political or economic unrest is common can benefit from in-house banking. This way, they can finance their business independently of the political and economic situation.
With an in-house bank, a company can set its own interest rates for loans and credit lines to subsidiaries. This can be several percentage points lower than usual market interest rates, resulting in increased profits for the corporation.
An in house bank is a great way to improve cash flow processes, increase visibility, and reduce the cost of banking fees. It can also provide data and analytics platforms that can track fund movement.
Regulatory Changes
Regulatory bodies exist to oversee financial markets and firms, ensuring they operate efficiently and fairly. They prevent and investigate fraud, keep markets transparent and make sure customers and clients are treated with respect.
During the recent global financial crisis, financial institutions outside of the traditional banking system posed a severe threat to global stability, even though they faced significantly lighter regulatory safeguards than banks. The failures of nonbank financial companies like insurance company American International Group (AIG) and investment bank Lehman Brothers aggravated the crisis.
In light of these lessons, financial regulators must revisit key changes in the post-2008 framework to ensure they can better respond to emerging risks. Specifically, the agencies should undo the Trump administration’s misguided deregulatory efforts and take three sets of initiatives to ensure the safety and accessibility of the banking system.
Process Efficiency
Financial services is a complex business and efficient operation is crucial. It’s a key factor in attracting and maintaining customers, as well as reducing costs and risk exposure.
Process efficiency is a measure of how quickly and effectively a business process can be completed from start to finish. It’s a crucial measure because it allows companies to determine how much they are paying for the resources needed to carry out a process.
For example, if a company spends more money on the processes they use to carry out business than they do for the services they provide, they are likely not as efficient as they could be.
Many banks are trying to improve their processes through lean initiatives. They use smart workflow tools and automation technologies to make their business operations more efficient, but these efforts often do not yield meaningful gains in aggregated operating costs.
Control
Control mechanisms are designed to give a business owner and his management team a way to monitor financial operations, identify mistakes and prevent them from recurring. They may be simple to implement and difficult to manage, but they’re vital in order to keep an organization running smoothly and in accordance with business plans.
According to Lumen Learning, one of the most common control mechanisms is financial policies that lay out the rules for managing cash. These are designed to create more discipline and accountability within a business, and they may be a good fit for companies that generate a lot of cash or have extensive international operations.
IHBs can help treasury departments streamline their workflows and reduce costs, including banking fees and FX transaction management. They also offer centralized liquidity management that allows groups to better determine whether external funding is needed at any given time based on the group’s cash position.
