A Surprising Realization: The Day Our New COO Misunderstood Overnight Interest Rates
Last month marked an interesting milestone for our bank as we welcomed a new Chief Operating Officer (COO) to the team. As the treasury manager, I have the responsibility of reporting directly to him, and today proved to be quite the learning experience.
In an unexpected turn of events, I discovered that our new COO was under the impression that placing $10 million in an overnight deposit at a 4.80% interest rate would yield a handsome return of $480,000 for just one night! When I corrected him with the actual figure of $1,333 per night, his puzzled expression was priceless. I then had to explain that the overnight rate is derived by dividing the annual rate by 360 days, a revelation that left him seemingly baffled.
This encounter served as an amusing reminder that our bank might be embarking on a unique journey under new leadership.
For clarity, it’s worth mentioning that although he is supposed to have over 25 years of expertise in banking operations, our bank is situated in the North African region, not in America.
Many may wonder why the treasury department reports to the COO instead of the CFO. It’s an unconventional arrangement, I admit. However, in our organization, the treasury is managed as a profit center. Due to the significant interaction between the operations, specifically trade finance, and the treasury department, it has been integrated into the operations unit. Despite the unforeseen challenges, this setup generally functions well, provided we don’t appoint another ‘cabbage-head’ to lead!
One response
It’s certainly a surprising and concerning situation when a senior banking executive appears unfamiliar with basic financial calculations. Given your role as a treasury manager, you likely find this especially disconcerting. However, there are constructive ways to approach this issue that could mitigate potential risks for your bank.
Understanding the Discrepancy in Financial Knowledge
1. Structured Onboarding and Training:
Although it’s expected that someone in a COO position would have a comprehensive understanding of financial fundamentals, sometimes knowledge gaps exist, particularly if they have specialized in areas like strategic oversight or other non-treasury-related functions. Organizing structured onboarding sessions that include a refresher on specific treasury operations, such as interest rate calculations and their implications, could be invaluable. It might be beneficial for you, or someone in your position, to facilitate these sessions.
2. Contextual Learning:
Consider providing context regarding local variations in financial operations. Since your bank is in the North Africa region, it’s possible that regional practices differ from those the COO is accustomed to, especially if he has international experience. Seasonal trends, local regulations, and region-specific banking customs could be areas where your expertise is invaluable.
Improving Bank Operations and Decision-Making
3. Implementing Standard Operating Procedures (SOPs):
Developing or refining SOPs that cover basic and advanced treasury functions can ensure that anyone new to the operations team, regardless of their seniority, has access to a vetted resource. This can minimize misunderstandings and align everyone on how calculations should be approached.
4. Utilize Technology for Oversight:
Consider integrating financial technology tools that provide automated verification for calculations or decision support. Tools that model various financial scenarios with correct parameters can assist in validating decisions before they are executed.
Promoting a Collaborative Environment
5. Foster Open Communication:
Create regular opportunities for open discussions between the COO and the treasury team, perhaps integrating monthly collaborative reviews of treasury operations and outcomes. This would not only facilitate a better understanding across departments but also build trust and open dialogue, potentially revealing why such a misconception might occur.
6. Empathy in Leadership:
It’s important to remember that everyone has different strengths and weaknesses. Fostering an environment where questions are welcomed, even fundamental ones, may improve morale and operations. If the COO feels supported in learning from knowledgeable team members like you, he can become more open to bridging knowledge gaps.
Bringing Value Beyond Financial Metrics
**7. Long