In-House Bank

A group owns subsidiaries in several countries, and one has surplus cash while another needs short-term funding, so a central treasury can coordinate balances and documented internal transactions rather than each subsidiary acting independently. Treasury Today's in-house bank guide describes centralised payments, cash pooling, intercompany loans and netting as possible stages, and it emphasises local legal, tax, currency and regulatory limits.

Citi's discussion of in-house banks presents benefits such as visibility and standardisation, but any potential savings depend on scale, bank arrangements and implementation costs, and a vendor example is not a guaranteed result. Start with the scope, because some groups only centralise payment processing while others also record internal deposits, loans or foreign exchange, and calling both an in-house bank can conceal very different obligations.

Identify the legal entity: a treasury company or parent may act as counterparty, while a central team may only administer transactions on behalf of group companies, and formal agreements should match the reality. Map cash by collecting reliable balances, currency, timing and restrictions for each entity, since a consolidated dashboard does not mean all cash is freely movable.

Check ring-fenced funds, as local requirements, minority shareholders, lender covenants or currency controls may limit pooling, so do not transfer cash based solely on a group-level positive balance. Central execution of payments can standardise bank connectivity and controls, but invoices, tax records and account ownership must stay attributable to the correct entity.

Net intercompany amounts when allowed: if Company A owes B $100 and B owes A $70 in the same currency and settlement period, a permitted netting arrangement may settle $30 rather than two gross transfers, though the underlying $100 and $70 obligations still need records. Record internal loans, with principal, interest, maturity, currency and approvals documented, because an informal transfer can create accounting and tax problems.

Set transfer-pricing support too, since internal rates and fees may need to reflect applicable arm's-length rules, the correct method is jurisdiction-specific, and a simple example is not a tax opinion. A central hub can aggregate foreign-exchange exposures, but hedging requires policies, counterparty limits and authorised execution, and currency conversion is not free.

Reconcile daily so that subsidiary ledgers, treasury records and external bank statements agree, because a centralised process can magnify errors if controls are weak, and separate duties so the person creating a beneficiary or intercompany loan does not alone approve and release the related payment. Model the full cost, as treasury software, bank fees, staff, legal setup and ongoing compliance can outweigh the benefit for a small group, so start with a clear use case.

An illustrative gross-transfer reduction from simple bilateral netting is $170 of two opposing payments to a single $30 settlement, which is not a $140 profit because obligations are offset, not forgiven. Watch liquidity timing, since a subsidiary may appear cash-rich today but owe payroll tomorrow, and respect entity boundaries because consolidated accounts do not make subsidiaries a single legal person and directors may have obligations to their own entity and creditors.

Audit the arrangement by maintaining agreements, authorised limits, transfer logs and evidence of approvals, which helps explain balances and resolve disputes between group companies. For owners, an in-house bank can make a complex group's money movements clearer and more controlled, but it requires careful structure and discipline, not merely a central bank account.