3 Notional Pooling

This topic describes the information about the Notional Pooling feature.

The system supports notional pooling of accounts for cash concentration benefits. Under notional pooling, balances remain on participating accounts. The bank charges or credits interest on net balance of the pooled accounts thereby mitigating the cost of overdrafts on participant accounts.

Notional Pooling of is a mechanism for calculating interest on the combined credit and debit balances of accounts that a corporate parent chooses to cluster together, without transferring any funds. It is ideal for companies with decentralized organizations that want to allow some autonomy to their subsidiaries, including their control over bank accounts.

Pool participant accounts are aggregated for interest compensation purposes. Funds are not physically moved but are notionally combined. There is no commingling of funds, and the integrity of the individual account position is maintained.

Notional Pooling can be combined within the framework of a global cash concentration structure to provide comprehensive overlay structures to meet even the most complex organization’s needs.

Notional pooling can have multi-layered overlays like in country pools sweeping into regional pools which in turn sweep into global pools. This type of structure is provided to mirror the corporates regional treasury arrangements.

Once a company earns interest on the funds in a notional pooling account, interest income is usually allocated back to each of the accounts comprising the pool. For tax management reasons the corporate parent usually charges the subsidiaries participating in the pool for some cash concentration administration expenses related to management of the pool. This scenario works best if the corporate subsidiaries are located in high-tax regions where reduced reportable income results in reduced taxes.

The main downside of notional pooling is not allowed in some countries. It is difficult to find anything but a large multi-national bank that offers cross-currency notional pooling. Instead, it is most common to have a separate notional cash pool for each currency area.

Notional pooling is normally done within one branch so that the bank gets the right of offset on its balance sheet (from the regulators and clients). Else, the bank must set aside capital to cover the gross pooled balances.

This topic contains the following subtopics:

• Benefits of Notional Pooling
  This topic describes the information about the benefits of Notional Pooling.
• Notional Pooling Structures
  This topic describes the information about the Notional Pooling Structures.
• Interest Calculation Methods
  This topic describes the information about the Interest Calculation Methods.
• Interest Allocation Methods
  This topic describes the information about the Interest Allocation methods.
• Interest Reallocation
  This topic describes the information about the Interest Reallocation methods.