Bank Treasury

Management
Prepared By:
Tasneema Khan
Assistant Professor
Department of Banking and Insurance
University of Dhaka
Topic of Discussion
 Organization Structure of a Bank Treasury
 Organizational Chart
 Segregation of Duties
 Monitoring Controls
 Treasury Reporting
 Treasury Desks
Organization Structure of a Bank Treasury
The various functions handled by a bank treasury can be
divided as:

 FrontOffice
 Mid Office
 Back Office
 Organization Structure of a Bank Treasury

 Front Office: Dealing- Risk taking

 Mid Office: Risk management
 Back Office: Confirmation, settlement, accounting and
reconciliation
1. Front office
Responsible for carrying out day-to-day analysis and transactions relating to the management of funding, risk,
cash and liquidity.
The front office is responsible for:
 Working with the business to identify exposures;
 Providing market information and pricing advice to the organization;
 Cash management;
 Dealing (money markets, FX, interest rates, long-term funding); and
 Deal entry into the treasury management system (TMS).

2. Mid office
Only larger treasuries will have a mid office often picking up some of the roles under ‘back office’,
commonly the reporting and analysis type roles, but it varies enormously by organization.
3. Back office
Administers and supports the front office and its main functions are to validate (confirm and verify), settle,
and account for deals.
The back office administers and supports the front office; its main functions are to:
 Confirm treasury transactions in a timely manner;
 Settle deals when due;
 Perform bank reconciliations in order to ensure all funds have moved as expected;
 Account for transactions;
 Provide all necessary reporting where no middle office exists; and
 Supervise the functionality and controls established within the TMS.
Front Office:
The front office in any treasury is primarily responsible for the trade
execution and liquidity management of the bank.

A treasury in a bank normally has a Money Market (MM) desk, a Foreign

Exchange (FX) desk, a Capital Market (CM) desk and a Derivative desk,
characterized by product types.

Each desk has multiple dealers; each is designated a different level of

authority, based on roles.

The major roles that can be defined for the users of a treasury system are:

User roles
1. Treasurer
2. Chief dealer
3. FX dealer
4. MM dealer
5. CM dealer
6. Derivative dealer.
Functions:
 Significant interaction with various trading and delivery teams
 Liquidity management
 ALM implementation
 Striking of deals and earning from trading
 Maintenance of SLR and CRR
 Reporting to respective authorities

Back Office:
The back office is responsible for delivery and settlement of all transactions conducted by
the front office.

 Coordination with front office to ensure optimum usage of all treasury dealing systems
 Internal control and check over treasury dealings, confirmation and settlement activities
 Ensuring compliance with stated treasury procedures and stipulations
 Monitoring of SLR/CRR maintenance and submission of compliances
 Audit facilities.
Mid Office:
The mid office is considered as the conscience keeper of the treasury.

 It is responsible for the critical functions of independent market risk monitoring,

measurement, analysis and reporting to the ALCO.
 An effective mid-office provides independent risk assessment which is critical to the
ALCO’s key function of controlling and managing market risk in accordance with the
mandate established by the Board/Risk management committee.

Functions of Mid Office:

1. Management of risks:
 Market risk which arises on account of:
 Interest rate movement, Foreign exchange rate movement, Commodity
price
 Country risk
 Liquidity risk
2. Independent market risk monitoring, measurement, analysis and reporting for bank’s
ALCO
3. Formation of investment policy for bank’s treasury
4. Formation of ALM policy for the bank
Organizational Chart
Organizational structure of bank treasury should be done
in such a way that:

 Dealing operation of both the foreign and local currency

can be done from one place.
 Specific job task can be allocated to all personnel
working in the department.
 The front office and back office are segregated.
 The back office remain under direct control of top
executives of the organization.
Segregation of Duties
It is vital that different individuals within front, mid and back offices are
responsible for the different activities during the deal life cycle.

 People who perform the respective duties in front and back office have
different reporting lines.

 Sometimes it is difficult in small organization to segregate the duties

completely. In that case at least it can be ensured that two sequential tasks are
not being performed by the same person:
 Identification of positions and dealing
 Authorization of deals
 Confirmation
 Authorization of settlement
 Release of settlement
 Accounting
Monitoring Controls and Treasury
Reporting
Regular reporting to management is the most common
form of monitoring treasury activities. The purpose of
treasury reporting is:

 To inform senior management of financial exposure

 To demonstrate to senior management that treasury
activity is within parameters authorized by the board
 To promote the analysis of activities and performance
measurement within treasury and so lead to
improvements in efficiency and control.
Treasury Reporting
The treasury report will include information on the major
risks of the business and the performance of the treasury
function over the past month.

 Economic Update
 Foreign exchange
 Long term funding
 Interest rate exposures
 Cash management and investments
 Bank relationship and credit exposures
 A record of outstanding and costs involved
Treasury Desks
 Asset Liability Management (ALM) Desk
 Money Market Desk
 Foreign Exchange Desk
 Primary Dealer & Fixed Income Desk
Asset Liability Management (ALM) Desk:
Treasury is the driving force of ALCO. It executes the
strategies of the Asset Liability Management Committee
for effective management and monitoring of various
balance sheet gaps. It takes various decisions regarding
interest rate structure of deposits, loan to deposits ratio
etc by evaluating the market scenario.

Asset Liability Management (ALM) functions:

 Matching volume of Assets with volume of liability in
different tenors to minimize liquidity risk.
 Provide rates of deposit of different deposit schemes.
Money Market Desk:
 Call lending & borrowing
 Term placement and borrowing
 Repo & Reverse Repo

Foreign Exchange Desk

 Trading of Foreign currencies in terms of Spot & Forward etc.
 Making quotations of foreign exchange rates in major currencies.
 SWAP trading

Primary Dealer & Fixed Income Desk:

 Trading Treasury Bills and Bonds in the secondary market.
 Acting as a Primary Dealer for Government Bonds and Securities.
 Maintaining Cash Reserve Requirement (CRR) and Statutory
Liquidity Requirement (SLR).
 Providing financial advisory services to the prospective customers of
Government securities for bond market development.
Thanks