Companies face pressure to reduce bank balances at Raiffeisen Bank, higher bank processing fees and new sanctions.

The dramatic showdown that unfolded in Russia over the weekend threatened to further complicate the challenges facing multinationals still operating in the war-torn region amid sanctions and countersanctions. Some are members of the NeuGroup for Russia-Ukraine Crisis working group, including companies that transport food commodities and medical supplies. One member trying to get ahead of the potential fallout from the apparent mutiny requested a session which took place Monday.

• Members who participated in the discussion have not yet noticed any change in business conditions because of the recent events. But they addressed several new and ongoing concerns.
• For example, one food company believes new plantings and grain in warehouses have declined and expects the “grain corridor” to be shut soon. The member said the outlook calls for a worsening of the global food situation in Russia and Ukraine, both important suppliers. Also, there are rumors of a new tariff on fertilizers which could exacerbate the problem.
• What follows are takeaways from the session distilled by Paul Dalle Molle, NeuGroup senior executive advisor, who leads the working group and moderated the group’s 26th gathering.

Lower bank balances. With the withdrawal of most Western banks, and in particular Citibank, multinationals have been relying on two remaining institutions, Raiffeisen Bank and Unicredit. For some time, Raiffeisen has required clients to lower month-end cash balances; now the bank is asking for daily balances to be kept very low.

• Members have been complying by moving funds held at Raiffeisen to other bank accounts at small, unsanctioned Russian banks or international banks headquartered outside the EU and US and still active in Russia.
• This process is familiar to members who faced the same requirements from Citi as it wound down operations in Russia.

Brokerage accounts? To keep balances low, banks have suggested companies open brokerage accounts so excess cash they hold at the bank can be swept nightly from the operating account on the bank’s balance sheet to the brokerage account managed by the bank.

• This is a well-known and typical procedure throughout the world, only now being applied to Russia because banks are under so much pressure to reduce their Russian reserves.
• However, even if members are OK in principle with this procedure, none present have opened the accounts because the required documentation was daunting—they decided the benefits were not worth the time and expense.

Declined payments. Members reported recent changes in how Raiffeisen is processing payments, declining those less than EUR 50,000, and rejecting some larger payments for unclear reasons. So far, it appears Unicredit is processing all payments normally.

Few exit ramps. Members report that, as usual, the only money exiting Russia is for intercompany trade invoice settlements verified through the normal bureaucratic process; there are no dividends nor capital repatriations.

• There are rumors that Russia will impose a 10% or even a 50% tax on these types of payments, but so far members say all payments are coming through correctly. Processing fees from banks, however, have increased.
• Members are still unable to repatriate funds from Ukraine.

Sanctions. Some recent new Western sanctions have forced companies to update their list of approved counterparties again and to interrupt or change previous sales already in process.

• One member reports that new sanctions on raw material imports by their Russian affiliate will delay or diminish their production of goods that are otherwise compliant with sanctions.
• Another noted that Russia has passed a new law allowing it to seize Western assets. Earlier this month, the Financial Times reported the Kremlin secretly ordered legislation to enable Western assets to be appropriated at reduced prices and is discussing even more draconian measures to fully nationalize companies, citing people familiar with the deliberations.

Russian share shortfall. Mr. Dalle Molle cited a report by Reuters this week that Deutsche Bank had uncovered a shortfall in the Russian shares that back depositary receipts the bank had issued before the Ukraine invasion.

• The report says Deutsche Bank attributed the shortfall to a decision by Moscow to allow investors to convert some of the DRs into local stock.
• This may not affect corporates operating in Russia directly but underscores global investors’ challenges in recovering trapped investments in the country’s companies.

Liquidity, collateral, the Fed’s discount window and regulators spark talk following the collapse of Silicon Valley Bank.

The banking crisis of confidence sparked by the collapse of Silicon Valley Bank (SVB) in March has pushed many members of NeuGroup for Regional Bank Treasurers to revisit, review and—in some cases—rethink aspects of liquidity stress testing and contingency funding plans. Among the most discussed topics: where collateral is pledged, communication with regulators and the stigma of using Federal Reserve borrowing programs like the discount window.

• Bank treasurers shared lessons they have learned and other post-crisis insights at their spring peer group meeting sponsored by Morgan Stanley in May. Bank treasury team members discussed liquidity stress analytics at a session later in the month. Following are some key takeaways from the discussions.

Liquidity and concentration risk. For one member, SVB’s implosion underscores the need to pay special attention to concentration risk and set deposit size limits when performing liquidity stress testing on large depositors. That’s because a sudden decision by big depositors to withdraw funds could have an outsized impact on the bank—as happened at SVB. In response, this bank treasurer used SVB as a tool to amp up his stress testing.

• “If you haven’t done it, it’s worthwhile for your liquidity stress test to stick in the balance sheet of one of the banks that failed,” he advised. “We said if we had SVB’s deposit base, what would our liquidity framework have required us to hold in liquid assets?”
• His bank designs its liquidity stress testing around the requirements of Federal Reserve Board Regulation YY, which the member said puts significant focus on an institution’s concentration of funding sources.

Contingency funding plans: know what to do. Bank treasurers and their teams need to have absorbed and repeatedly practiced the steps laid out in contingency funding plans and playbooks long before a crisis emerges. Planning and practice can’t take place once trouble arrives. For some members, the goal is to make the execution steps so ingrained that they don’t need to consult the plan.

• “If you have to look at your contingency funding plan in a moment of crisis, you probably aren’t prepared to execute it,” one bank treasurer said.
• In the wake of the stress caused by SVB, this treasurer looked at his bank’s contingency plan and realized “we pretty much did everything; and part of that is because we’re always testing, we do regular exercises, we’ve kind of developed muscle memory around our contingency funding plan. We know what to do.”
• That included immediately positioning the bank to make use of the Bank Term Funding Program the Fed established in response to the crisis by pledging securities, although it didn’t access the BTFP for funds. The BTFP values collateral assets like Treasuries at the full price paid, not the current market value.
• For another treasury team, using so-called tabletop exercises to simulate emergency scenarios as well as reacting to an actual event where contingency funding wasn’t ultimately needed also proved useful post-SVB.
  • In that chaotic period, contingency funding and daily meetings for reporting became necessary. “The value was convening all of the working groups, pulling those teams together and having them at the ready,” a member on this team said.

Closing times and collateral choreography. NeuGroup member banks came away from the SVB experience with a deeper understanding of the importance of being able to tap liquidity from a variety sources at different times of the day—and the ability to move collateral to get that liquidity quickly.

• “Know where the collateral is and know the cutoff times,” one treasurer advised, referring to when various funding facilities close up. Another member said, “It became clear to us that we don’t spend enough time thinking about intraday liquidity and temporal mismatches.”
• Timing is part of the challenge and knowing where to go if the bank suddenly needs liquidity. “You start worrying about when desks are going to close,” one member said, echoing a common theme, particularly about when Federal Home Loan Bank windows close.
• One treasurer said his team has “regular communication with our [Federal Home Loan Bank] and they’ve educated us on what we can expect to get at certain times of the day; we can’t call them up and borrow our whole line, and we don’t expect to be able to.”

Go to the Fed window? The SVB crisis changed one treasurer’s view of turning to the Fed’s discount window if necessary. Since March, his bank has dramatically increased the number of loans pledged at the Fed after learning “they are much more willing to work with you on electronic collateral” than he was aware.

• “At the end of the day, you hope to never have to go to the Fed, but if you have something late in the day, it’s really the only option,” the treasurer said. And “if you don’t have some collateral and you have something that happens late, you’re kind of out of luck.”
• This member said there should be no stigma attached to going to the discount window late in the day if the bank pledges to repay the Fed as soon as its Home Loan Bank opens in the morning.
• Other members said the stigma will stick unless the Fed takes concrete action to destigmatize use of the window. If you use it, one member said, “regulators will be on you.”

The value of repo. One member recommended his peers position themselves to use the repo markets to access liquidity in times of crisis. But adding this arrow to their liquidity stress quiver may require that bank treasurers help educate regional bank regulators, he said. “A lot of midsized banks don’t actively use repo, so regulators of these banks aren’t as familiar [with repo] as large bank regulators,” he said.

• He noted that “when we put securities as [hold to maturity], the first consideration is establishing repo lines that use them as collateral to turn into sources of funding.” His bank has repo traders, part of an operational team with “lots of experience pledging securities.”
• He also recommended that peers who have not already done so look into the General Collateral Funding (GCF) repo program run by the Fixed Income Clearing Corporation. It allows anonymous borrowing “as long as you have collateral,” the member said. “We did a test during this [crisis] period and we borrowed against all the collateral we have there, which is probably 10% of assets, in like 15 minutes.”