Banks in emerging markets and their counterparts in developed ones have different philosophies about the role of treasury units, McKinsey research finds. The former tend to encourage risk taking and regard the function as a profit center; the latter typically restrict the scope and activities of treasuries to hedging and traditional balance sheet management.
Our findings, from a McKinsey survey of senior executives at 30 leading global financial institutions, show how different organizational models for treasuries have evolved in response to the growing sophistication and depth of financial markets—notably, higher volumes of interest rate derivatives. More recently, we have noted signs of convergence between these approaches, though the credit and liquidity crunch of mid-2007 may generate further evolution.
Exhibit 1 summarizes three types of organizational and governance structures in treasury units. Thirty years ago, virtually all banks were at stage one; indeed, many still are. The integrated model—stage two—became popular 10 to 15 years ago as many banks expanded the scope of their treasuries to include the broader management of the balance sheet (for instance, managing interest rate risk) and the capital markets business,1 as well as liquidity management. Stage three, treasuries as specialized service centers separate from the...