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Multi-Level Cash Pooling

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104 views2 pages

Multi-Level Cash Pooling

Uploaded by

lolitaferoz
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Multi-Level Cash Pooling

Multi-level cash pooling is an extension of account sweeping where numerous accounts


can be grouped together and their balances moved up to a top level account where the
benefits interest benefits can be gained on the accumulated balance.

The easiest way to envisage a ‘Group’ or ‘Cash Pool’ is that of a family tree like
structure. All accounts that would qualify for a cash pool will need to have conditions or
rules that dictate when and how much money should be transferred to another account.
As mentioned above the purpose of a Cash Pool is to be able to move funds together at
a higher level, the proviso to this would be to ensure that accounts lower down in the
Group tree remain at a certain level and do not fall into overdraft.

There are currently three styles of sweep, (movement). These are maintenance,
surplus and two- way. Maintenance is when an account balance falls below a
predetermined level and needs to get funds from another account to ‘top-up’ the
balance. Surplus is when an account has excess funds

(again above a certain predetermined limit) and moves the excess into another account.
A two-way is a combination of the other two; if it is below a limit then get some funds,
otherwise put the excess balance to the another. The surplus will be extended to
enable different accounts to be swept into depending on the balance on the originating
account. E.g. If the balance on account A is 900m, move 700m into account B;
everything between 700 – 800m goes into account C, and finally any balance over 800m
goes into account D. If account A in the example above is in overdraft then the rule will
not take effect. There is also another new rule, CASHFLOW rule; CASHFLOW, which in
essence allows a two-way rule to have a budget, assigned to it this enabling rule
balance monitoring to be used. So an account can be given an amount of 500m to use
and it cannot take more than this figure in sweeps unless it adds to it.

There is a parameter file, AC.CP.GROUP.PARAM which users will use to enter the
parameters that will control each group that the bank wish to set-up. There is no
constraint on the number of pools that can be in operation, nor is there a restriction on
the number of accounts per group. Within the parameter file the user will enter such
information as the default balance to use for the pool, the highest level account, (the
ultimate target for the funds to be swept up into). There must also be information added
as to the type of sequencing to use and whether or not this is a main group or sub-
group – discussed later.

As with the account sweeping functionality there are basic conditions or rules available
that will dictate what an account does with it’s current funds. They are Maintenance,
Surplus, Two-way and Cash flow. Each rule has it’s own objective, the Maintenance
rule is used to get funds from another account if it’s balance should fall below a certain
level. The Surplus rule will place funds above a certain account balance into another
account. The Two-way will be a mixture of Surplus and Maintenance; if the balance falls
below a certain level then transfer funds into this account otherwise transfer money
away to another account. The cash flow rule is more complex in that it involves two
balances that the user will initially define , the CASHFLOWDEFINE - the cash flow
balance which limits the monetary amount that can be passed down to account B from
account A and the aggregate balance which will be a running total of monies passed
between the two accounts . These two balances accumulated together set the limit on
monies that can be passed down from Account A to Account B at Start of Day; so once
a year, (or whenever you choose) account A states that account B has a cash flow
balance of 700million. Throughout the year, with a combination of the other three rules,
the aggregate balance between A an B is 150 million . This 150 million added to the
cash flow balance of 700 million indicates that Account B may receive up to 850 million
swept down from Account A. (E.g. there may have been a large dividend paid into a
lower level account which has swept up into this higher level account). Until the
aggregate balance changes the cash flow balance will now be 850million for this
account. It is possible that an account lower down in the pool has had a major mishap
and needs to top-up an overdraft by 200million thus reducing the amount that account B
has in it’s aggregate balance to -50million DR. In such case the balance now available
to Account B is 700 million + 50 million DR = 650 million and this will be the maximum
amount that can be used until once again it changes.

Once the parameter file is set the pool is ready to be set. Every account that is to be part
of the pool will need to have information added to the new file AC.CASH.POOL, this is
where users will enter information unique to this account and detail how this account is to
interact with the larger pool as a whole. It will be in the AC.CASH.POOL file that the rule
type, (one of Maintenance, Surplus etc) will be entered. Also entered, also the sequence
number of this account within the pool. If a sequence of 34 is entered here then this
account would be processed after account 35 and before account 33. It is possible to
change these sequence numbers at any time while an account is still part of a pool by
pool. By entering 72.1 it would inform the system that this account is to be inserted into
the tree-like structure after number 72 and before number 73. So the account with the
72.1 entered in the sequence field will become number 73 and number 73 will become
number 74. This file will also be used to enter the frequency of each rule entered for
an account. This facility gives banks complete

control over their cash pools, how they run, when they run and how much each account
will contribute to the cash pool.

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