Banking
Core Banking Concepts for Treasury Professionals
Candidates must understand how banks structure their services, price them, and manage risk. Key concepts include the payments system (wire transfers, ACH, cheques, and emerging real-time rails), account structures (concentration accounts, zero-balance accounts, and notional pooling), and bank relationship management (credit facilities, service agreements, and fee analysis). You should also know the regulatory environment: Basel III capital and liquidity requirements (LCR, NSFR), deposit insurance limits (CDIC in Canada), and anti-money laundering (AML) obligations.
Traps in questions:
- Confusing availability float with book float; questions may ask which affects the company's ledger versus the bank's records.
- Mixing up compensating balances with minimum operating balances; the former are negotiated to offset fees, the latter are for operational needs.
- Overlooking that wire transfers are final and irrevocable, while ACH payments can be reversed under certain conditions.
- Assuming all bank accounts are insured; CDIC coverage is per depositor, per institution, per category, and has limits.
Worked example / rule of thumb: When evaluating a bank account analysis statement, use the earnings credit rate (ECR) to convert balances into fee offsets. Rule of thumb: If the ECR is 2% and you maintain a $100,000 average collected balance, the monthly earnings credit is approximately $100,000 × 2% / 12 = $166.67. Compare this to total fees; if fees exceed the credit, you pay the difference in cash. Always use collected balances, not ledger balances, for this calculation.
Key Points
- Know the difference between wire transfers (final) and ACH (reversible).
- Understand account structures: ZBA, concentration, and notional pooling.
- CDIC insurance limits apply per depositor, per institution, per category.
- Earnings credit uses collected balances to offset fees.
- Basel III liquidity ratios (LCR, NSFR) affect bank funding and pricing.