SOURCE: Treasury Strategies

Treasury Strategies

July 02, 2013 08:00 ET

Corporate Cash Estimates in U.K. and U.S. Revised Sharply Lower

CHICAGO, IL--(Marketwired - Jul 2, 2013) - The U.K. Office of National Statistics (ONS), following the lead of the U.S. Federal Reserve, sharply lowered its estimate of cash held by non-financial corporations. Citing only "methodological improvements," ONS revised its estimate of year-end corporate cash downward by 31%, from £732 billion to £501 billion.

In June of 2012, the U.S. Federal Reserve slashed its corporate cash estimates by 22% from $2.232 trillion to $1.732 trillion. The Federal Reserve attributed its revision to better source data, including data from the IRS.

"This is a matter of great concern," says Anthony J. Carfang, a Partner of Treasury Strategies. "Corporations have been subjected to punitive regulatory and financial policies, based partly on the accusations of cash hoarding. We're now discovering the data were faulty. Indeed, corporate cash in the U.S. today is only 11% of GDP, barely up from the 10% level of the year 2000."

Monie Lindsey, a U.K. Managing Director at Treasury Strategies notes that these revisions are much more than mere statistical adjustments and that the explanations thus far have been unsatisfactory. "Regulators on both sides of the Atlantic are targeting money market funds, a key corporate cash management tool. There is considerable conversation about transaction taxes and cash repatriation issues. However, this all now appears to be based on erroneous information," says Lindsey.

Carfang calls for a regulatory time out: "Let's pause and make sure the numbers and underlying assumptions are correct before realigning major parts of the global financial system. We need to get this right."

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