An important part of treasury management is maintaining the optimal number of banking relationships for an organization. As every organization has unique operating and financial characteristics, there is no one ideal number of banking relationships.

That being said, there are four factors that all treasury professionals should consider when determining their organization’s banking needs.

1. The organization’s current credit commitments and future credit needs. Companies with larger credit requirements may not be able to find one bank that can serve all of their credit needs. Additionally, companies may want to spread out their counterparty risk.
2. The organization’s geographic footprint. Multiple banking relationships may be necessary to ensure product and service coverage in all countries where a company has a presence. Even an organization with only a domestic presence may need to work with multiple banks to ensure coverage — for example, a U.S. firm that needs access to bank branches in various states.
3. The need to balance the costs of maintaining multiple relationships against concentration risk (i.e., the risk of having a single point of failure). Although it adds operational complexity, maintaining secondary banking relationships lets treasury shift accounts and services if a significant problem develops with the primary bank.
4. The relative strengths and capabilities of each bank. If a company adopts a “best of breed” approach to selecting banking partners, it’s likely to choose the best bank for each service rather than a single bank that can provide all services. Treasury often must balance access to the best functionality with the need to have a manageable solution.

Many organizations establish multiple banking relationships to ensure adequate credit facilities. Furthermore, they often designate one as the primary bank. An organization’s primary credit bank often takes the lead by selling excess credit exposure to other institutions or acting as an agent for loan syndication.

Some organizations designate a primary bank for operating services as well. There may be different primary banks for credit and other services, or for a particular geographic region. For example, a multinational organization may have three primary cash management banks: one for the Americas; one for Europe, the Middle East and Africa; and one for Asia-Pacific.

Banking Considerations for Multinational Organizations

A multinational organization’s banking structure (i.e., the number and location of banks it uses to provide operating services) will depend on three things:

1. The types of collections and disbursements undertaken by the organization.
2. The locations and currencies of the financing and investments utilized by the organization.
3. The legal and tax regulations of the specific countries involved.

For example, a multinational organization that needs to manage a variety of currencies may choose one of three options:

1. Manage its currency needs in its home country, if foreign currency accounts are offered by its bank(s).
2. Maintain an account in a foreign currency in the country of that currency.
3. Use a combination of the first two approaches.

Optimizing Bank Relationships

Allocating business to specific banks is a key part of bank relationship management. Consider asking specific banks which services they would like to provide, as certain banks may have preferences.

Banks have a relatively sophisticated understanding of the percentage of a client’s business they have (i.e., “share of wallet”). They will often ask for more business if they feel they are not being given an appropriate share.

Furthermore, banks have developed more sophisticated methods for measuring relationship profitability. This means purchasing multiple services from a bank may reduce costs overall.

It’s important to remember that banks have to comply with their own balance sheet management policies when extending credit and providing transaction banking services to their corporate clients. This is to ensure compliance with regulatory capital requirements, among other reasons.

Every banking relationship comes with internal and external costs. These costs incentivize organizations to optimize the number of banking relationships they maintain.

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