Transcript 2013 Three Rivers Financial Forum

2013 Three Rivers Financial Forum
Managing Short Term Cash in a Challenging
Environment
Rebecca E. Grazier
Vice President
Liquidity Management
Agenda
Factors impacting cash management strategy:

Expiration of Transaction Account Guarantee program

Prolonged low rate environment

Potential for additional money market mutual fund reform
Ideas, strategies, and tools for optimizing short term cash
management despite these challenges:

Cash forecasting and segmentation

Understanding risk/return tradeoffs for various strategies and investment types

Potential tools for active investors
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Transaction Account Guarantee (TAG)
program expired as of 12/31/12
 TAG granted unlimited insurance to non-interest bearing checking accounts to help
instill confidence in the nation’s banking system during the financial crisis
 Deposits in commercial banks grew significantly as a result of the relatively strong
risk/return tradeoff that the program created
 On December 31, 2012, the government let the TAG program expire
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Prolonged low rate environment
The US Federal Reserve has used monetary policy in an effort to stimulate the national
economy
 Federal Funds Target Rate was reduced to a range between 0.00% and 0.25%
 Quantitative Easing is helping to maintain low rates
 The Fed recently shifted policy language - tying the target rate to unemployment
20-YEAR HISTORICAL U.S. INTEREST RATES
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
10Y Treasury
1M LIBOR
Fed Funds Target
Sources: The Federal Reserve Bank of Chicago, The IMF, Bloomberg
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Uncertain regulatory environment for money market
mutual funds
Proposed changes will continue to progress in 2013 and cause uncertainty and concern
among traditional investors in these instruments
Options for reform being considered include:
 Floating net asset value (NAV)
 Capital buffers funded by the mutual fund families
 Redemption restrictions
Percentage of US Businesses’ Short Term Assets invested in Money Market Mutual Funds
U.S. nonfinancial businesses’ short-term assets consist of foreign deposits, checkable deposits, time and savings
deposits, money market funds, repurchase agreements, and commercial paper.
*
Sources: Investment Company Institute and Federal Reserve Board
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Segmenting short term cash
Three components of short term cash:

Operational – Cash needed to support day-to-day operations. These funds are generally held
in investments that are very liquid and managed conservatively.

Reserve – Serves as a cushion for unforeseen events. The investment strategy for this cash is
also fairly conservative and usually held close to the main checking account.

Strategic – Reserved for a particular duration and purpose. Risk tolerance and time horizon
tend to drive the instruments used for this cash.
Segmenting cash requires accuracy in cash forecasting and offers the benefit of allowing multiple
investment strategies to be employed for different cash components
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Strategies to optimize short term cash investments
Short Term Liquidity Management
(up to 1 year)
Individual
Instruments
Money Funds
Longer Term
Investments
Interest Bearing
Bank Accounts
Receivables
Sweep Services
Earnings Credit and
Interest on Checking
Back Into Business Cycle
(Payables)
Interest bearing
Checking
Earnings Credit
on checking
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PINACLE® Liquidity Management
PINACLE® Liquidity Management is PNC’s liquidity portal service which simplifies and automates
the short term investment process by providing convenient online access to a wide array of
money market funds and PNC bank products.
 Trade with multiple money market mutual funds
 Download reports detailing transaction history and accrued interest
Convenience
and Efficiency
 Receive one consolidated account statement
 Settle with a single wire or account drawdown
 Easily manage account administration and user entitlements
 Establish rules that govern your online trading activity to help you
comply with your company’s investment policy
 Sort and filter investment options based on a number of criteria
Features and
Benefits
 Access real-time investment ratings from Moody’s, S & P’s and Fitch
 Access investment information, prospectuses and yield data
 Choose from a robust selection of competitive money fund options
and PNC bank products
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Questions?
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1-3-2013
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