## d18-cash-pooling-in-direct-investment

## Source details

**Canonical URL:** [d18-cash-pooling-in-direct-investment](https://www.imf.org/-/media/files/data/statistics/bpm6/ditt/d18-cash-pooling-in-direct-investment.pdf)

## Other formats

- [Markdown version](/-/media/files/data/statistics/bpm6/ditt/d18-cash-pooling-in-direct-investment.pdf.md)
- [Structured JSON version](/-/media/files/data/statistics/bpm6/ditt/d18-cash-pooling-in-direct-investment.pdf.json)

---

### Background and relevance
- Cash pooling arrangements provided by banks allow corporations to externalize intra-group cash management, managing global liquidity more effectively and with lower costs.
- Cash pooling enables groups to maximize the use of internal funds and minimize the cost of capital.
- Cash pooling arrangements are agreements between a bank and the entities of a group, which can be located in the same or in different economies, allowing for pooling of cash in real time.
- Cash pooling became more popular after the onset of the financial crisis, in an environment with limited access to capital markets, reduced bank lending, low returns and higher risks on banks' deposits.
- Cash pooling is currently very relevant in certain European countries and is mainly offered in the United Kingdom, France, and the Netherlands. In the euro area Balance Sheet Items (BSI) statistics, only the Netherlands is reporting (notional) cash pooling activities.
- In 2019, the European Central Bank (ECB) found that banks offering cash pooling arrangements were widespread in the European Union; cash pooling vis-à-vis intra euro area counterparts was particularly relevant for insurance corporations and pension funds as well as for nonfinancial corporations.
- The ECB found three main types of cash pooling offers by banks: (i) single legal account, (ii) physical cash pool, and (iii) notional cash pool. Although these types have a similar economic and financial interpretation under the debtor/creditor principle, statistical treatment differs and affects functional category classification as well as geographical and sector identification of the counterpart.

### Main types of cash pooling arrangements
- Single legal account
  - Structure:
    - (a) virtual transactions/operational sub-accounts used directly by individual companies (part of a group) and the parent company for day-to-day operations; and (b) a top/master group account (held usually by the parent company), which constitutes an obligation of the pooling bank vis-à-vis the beneficiary and concentrates the funds of the group.
    - Virtual sub-accounts only track intra-group positions and do not provide a direct relationship with the bank; information on virtual transactions is usually part of the service provided by the pooling bank but not necessary for the bank’s accounting system and should be in a separated system.
  - Bank reporting:
    - Only changes in the top/master account should be reported as this reflects changes in the bank’s claims vis-à-vis the parent company, the only direct client in this cash pool type.
  - Possible variations:
    - A special purpose entity could be set up to hold the top/master account; for simplicity, the parent company is assumed to hold the top/master account.
- Physical cash pool
  - Structure:
    - Each participating company holds an account with the pooling bank and there is a master account usually held by the parent company. Balances of surplus accounts are transferred to the master account on a regular basis (e.g., on a daily basis at close of business); the parent transfers liquidity from the master account to deficit accounts at end of the period (day).
    - All participating companies are counterparties of the bank; deficit balances from pooling participants appear only temporarily as assets on the bank’s balance sheet.
  - Two types:
    - Zero-balancing cash pool: full balance of surplus accounts is transferred to the master account on a regular basis.
    - Target-based cash pooling: specifies a (positive) threshold whereby when individual account balances exceed the threshold, liquidity is transferred to the master account, and conversely liquidity is transferred from the master account when balances are below the threshold.
- Notional cash pool
  - Structure:
    - All bank accounts represent legal relationships between the pooling bank and participating entities, making them direct counterparties of the bank. Pooling is performed by creating a notional top/master account that virtually consolidates positions but does not represent a resource or obligation of the bank.
    - No liquidity transfers resulting in inter-company loans take place; funds remain in the assets of the bank as a loan to a particular participating entity.
  - Consequence:
    - Following the cash pooling structure, the loan is guaranteed by cash pooling members, subject to lower charges, restrictions and implicit interest, and typically can only be drawn upon to the extent that the overall pool has a positive net balance.

### Key classification and recording issues
- Cash pooling is not per se a financial instrument; it is a bank arrangement that involves deposits and loans between participants. Proper classification requires identifying the cash pooling arrangement type to determine the actual debtor and creditor.
- Bank reporting should be able to identify real from virtual transactions; internal bookkeeping entries in virtual accounts should not be seen as bank transactions/positions.
- Parent and subsidiary companies should be able to report internal booking entries as intercompany lending (assets and liabilities) depending on fund direction (creditor or debtor).
- Cash pooling arrangements need identification via Direct Investment (DI) surveys when they take the form of single legal account or physical cash pool.
- If an overdraft or loan is received by a pooling participating subsidiary and covered by a single legal account or a physical cash pool, the creditor is the parent company (holder of the top/master account) and the recording is done as inter-company loans in DI (except for the debt between affiliated financial intermediaries, specified in BPM6 paragraph 6.28).
- If the overdraft or loan is based on a notional cash pool, the creditor is the pooling bank and the debt should be recorded in other investment (unless there is a DI relationship between the bank and the debtor that is not subject to the recommended classification in BPM6 paragraph 6.28).
- Misreporting cash pooling activities can lead to net errors and omissions, geographical asymmetries and a decrease in the quality of the functional category split in the financial account.

### Outcomes from DITT review discussions and guidance needs
- Drafting teams’ recommendation and DITT discussions confirmed the need to include a description of the types of cash pooling arrangements and their different statistical treatments under Appendix 6a: Topical Summary—Direct Investment and to include some examples in the updated compilation guide.
- The proposed statistical treatment complies with current standards; detailed descriptions and examples will help reporters and analysts adhere to the debtor/creditor principle.
- DITT members generally did not see problems in bank reporting of the debtor/creditor counterpart involved in cash pooling arrangements, although such arrangements are not separately reported in most cases.
- It was agreed that information from virtual bookings is not reported by banks and therefore cannot generate double counting.
- Reporting by DI companies was more heterogeneous: most countries do not identify cash pooling separately in DI surveys. This is not considered problematic if reporters correctly identify actual debtors and creditors rather than the payment service provider. A few members reported occasional respondent questions; clarifications and descriptions in the updated manual would be helpful.
- Questions for discussion (as posed):
  - Do you consider it relevant to include a description of the main types of cash pooling arrangements and their different statistical treatments in the updated BPM? Would it also be relevant to include some examples in its updated compilation guide?
  - Do you see any potential problem in how companies are reporting cash pooling—that is, in the identification of the debtor/creditor counterpart depending on the type of cash pooling arrangements?

### Annex I — Recording cash pooling structures: illustrative scenarios and accounting outcomes

- Single Legal Account — Scenario 1.1 (initial recording)
  - Group: Parent Company A (resident Country A) and subsidiaries B, C, D (resident Countries B, C, D).
  - Top account held by Company A with Bank X (resident Country A).
  - Cash pool: 100 EUR (40 from the parent, and 20 from each of companies B, C, D).
  - Country A reporting: two reporters — Bank X (S12T) and Parent Company A (assume part of sector S1P).
  - Cross-border transfers from B, C, D to the top account are recorded in balance of payments and IIP; the deposit by Parent Company A is a domestic transaction and not included.
  - Result: increase of assets of the banking sector of Country A vis-à-vis countries B, C, and D; Bank X records an overnight deposit liability of 100 EUR with the parent company.
  - Table summary (Country A — Single Legal Account):
    - Opening position: Financial account Assets 1000, Liabilities 0.
    - Transactions: Assets +60, Liabilities +60.
    - Closing position: Assets 1060, Liabilities 60.
    - Intercompany loans (Direct investment): Opening 0; Transactions +60; Closing 60.
    - Currency & Deposits/loans (S12T): Opening 1000; Transactions 0; Closing 1060 assets and 0 liabilities.
    - Net I.I.P. / net errors and omissions: 1000 assets, 0 liabilities.
    - Balance sheet note: Bank X records an overnight deposit of 100 EUR as a liability with the parent company.
- Single Legal Account — Scenario 1.2 (transaction: Company B purchases debt security 30 EUR)
  - Payment flows through the top account; top account is debited 30 EUR.
  - Accounting outcome: elimination of inter-company loan of B to A and creation of a loan of A to B worth 10 EUR.
  - Table summary (Countries A and B):
    - Country A: Opening Financial account Assets 1060, Liabilities 60; Transactions Assets -20, Liabilities -20; Closing Assets 1040, Liabilities 40.
    - Country B: Transactions Assets +10, Liabilities +10.
    - Currency & Deposits/loans (S12T) for Country A: Opening 1060 assets; Transactions -30; Closing 1030 assets.
    - Balance sheet note: Bank X records an overnight deposit of 70 EUR as a liability with the parent company.

- Physical Cash Pool — Definition and types
  - All accounts in the pool represent either a resource or an obligation of the bank vis-à-vis participating entities; participating entities are direct counterparties of the bank.
  - Deficit balances of pooling participants appear temporally as assets on the bank’s balance sheet.
  - Types: zero-balancing cash pool and target-based cash pool (see above).

- Physical Cash Pool — Scenario 2.1 (target-based example)
  - Group: Parent (Country A) and subsidiaries B, C, D (Countries B, C, D).
  - Master account held by parent with Bank X (Country A); Companies B, C, D have individual accounts at Bank X with 20 EUR each.
  - Threshold: 10 EUR.
  - End-of-day result: 10 EUR left in each subsidiary account; intragroup loans in BOP arise as companies B, C, D are nonresidents of Country A; loans to parent amount to 10 EUR for each company (total 30 EUR).
  - Bank X records a decrease in liabilities—currency and deposits—of 30 EUR vis-à-vis companies in countries B, C, and D; those 30 EUR become a domestic obligation to the parent company.
  - Table summary (Country A — Physical Cash Pooling):
    - Opening position: Financial account Assets 1060, Liabilities 60.
    - Transactions: Intercompany loans +30; Currency & deposits/loans (S12T) Transactions -30 liabilities change.
    - Closing position: Financial account Assets 1060, Liabilities 30.
    - Net I.I.P. / net errors and omissions: 1000 assets, 0 liabilities.
    - Balance sheet note: Bank X records overnight deposits (liabilities) vis-à-vis A (70), B (10), C (10), D (10).
- Physical Cash Pool — Subsequent month transaction (Company B purchases 30 EUR debt security)
  - Company B instructs Bank X; B only has 10 EUR and uses cash pooling, resulting in a temporary overdraft of 20 EUR shown in Bank X’s balance sheet (payment via individual account of B).
  - End-of-day: parent transfers 30 EUR from master account to cover overdraft and restore target of 10 EUR for B.
  - Outcome: reduces loan assets vis-à-vis parent by 10 EUR and gives rise to an intragroup loan asset of 20 EUR (parent to B); Bank X’s assets abroad reduction recorded as a reduction in assets (currency & deposits) for Other MFIs.
  - Table summary (Countries A and B for the transaction):
    - Country A: Financial account Opening Assets 1060, Liabilities 60; Transactions Assets -10, Liabilities -10; Closing Assets 1050, Liabilities 50.
    - Country B: Transactions Assets +20, Liabilities +20.
    - Portfolio investment entry reflecting 30 EUR purchase.
    - Currency & deposits/loans (S12T) Country A: Opening 1060 assets; Transactions -30; Closing 1030 assets.
    - Balance sheet note: Bank X records on the liability side overnight deposits of EUR 40 (A), 10 (B), 10 (C), and 10 (D).

- Notional Cash Pooling — Definition and implications
  - Accounts represent a legal relationship between the bank and participating entities; participants are direct counterparties of the bank.
  - The bank creates a notional top account that virtually consolidates positions but does not represent a resource or obligation of the bank.
  - No liquidity transfers occur; therefore no inter-company loans arise from end-of-day pooling.

- Notional Cash Pooling — Scenario 3.1 (initial positions)
  - Parent company deposit: 40 EUR; subsidiaries B, C, D deposits: 20 EUR each.
  - After pooling, Bank X keeps liabilities vis-à-vis the same counterparts; no intra-group loans recorded.
  - Aggregate cross-border positions between companies B, C, D and Bank X resident in Country A give rise to an aggregate liability position of 60 EUR.
  - Table summary (Country A — Notional Cash Pooling):
    - Opening position: Financial account Assets 1060, Liabilities 60.
    - Transactions: none affecting intercompany loans or currency & deposits/loans.
    - Closing position: Financial account Assets 1060, Liabilities 60.
    - Net I.I.P. / net errors and omissions: 1000 assets, 0 liabilities.
    - Balance sheet note: Bank X records overnight deposits (liabilities) vis-à-vis A (40), B (20), C (20), D (20).
- Notional Cash Pooling — Scenario 3.2 (Company B purchases 30 EUR debt security)
  - Payment goes through individual account of B; B lacks sufficient funds, resulting in an overdraft of 20 EUR in its individual account shown on Bank X’s balance sheet.
  - No end-of-day liquidity flows; the structure is technical and balance sheets remain as if operations were via individual accounts.
  - Funds relating to the overdraft remain assets of the bank as a loan to Company B, guaranteed by cash pooling members, subject to lower charges, restrictions and implicit interest; accessible only to the extent overall pool has a positive net balance.
  - Accounting outcome: reduction of 20 EUR in the liabilities of Bank X vis-à-vis Country B since this deposit no longer exists as an asset of B; a new asset of Bank X vis-à-vis Country B arises due to the overdraft (10 EUR).
  - Table summary (Countries A and B for the transaction):
    - Country A: Financial account Opening Assets 1060, Liabilities 60; Transactions Assets -20, Liabilities -20; Closing Assets 1040, Liabilities 40.
    - Country B: Transactions Assets +10, Liabilities +10; Portfolio investment entry reflecting 30 EUR purchase.
    - Currency & deposits/loans (S12T) Country A: Opening 1060 assets; Transactions +10, -30, -20 effects reflected; Closing 1040 assets.
    - Currency & deposits/loans (S1P) Country B: Transactions -20, +10 entries reflecting overdraft movement.
    - Balance sheet note: Bank X records on the asset side a loan of 10 (B) and overnight deposits (liabilities) vis-à-vis A (40), C (20), D (20).

*Prepared by Iustin Mihailescu and Carmen Picón Aguilar (European Central Bank—ECB) with input from Borys Cotto (International Monetary Fund—IMF).*

### SECTION I: THE ISSUE

### d18-cash-pooling-in-direct-investment - SECTION I: THE ISSUE

### Background
- Cash pooling arrangements provided by banks allow corporations to externalize intra-group cash management, managing global liquidity more effectively and with lower costs.
- Cash pooling enables groups to maximize the use of internal funds and minimize the cost of capital.
- Cash pooling arrangements are agreements between a bank and the entities of a group, which can be located in the same or in different economies, allowing for pooling of cash in real time.
- Cash pooling became more popular after the onset of the financial crisis, in an environment with limited access to capital markets, reduced bank lending, low returns and higher risks on banks' deposits.
- Cash pooling is currently very relevant in certain European countries and is mainly offered in the United Kingdom, France, and the Netherlands. In the euro area Balance Sheet Items (BSI) statistics, only the Netherlands is reporting (notional) cash pooling activities.
- In 2019, the European Central Bank (ECB) found that banks offering cash pooling arrangements were widespread in the European Union; cash pooling vis-à-vis intra euro area counterparts was particularly relevant for insurance corporations and pension funds as well as for nonfinancial corporations.
- The ECB found three main types of cash pooling offers by banks: (i) single legal account, (ii) physical cash pool, and (iii) notional cash pool. Although these types have a similar economic and financial interpretation under the debtor/creditor principle, statistical treatment differs and affects functional category classification as well as geographical and sector identification of the counterpart.

### Main types of cash pooling arrangements (as described)
- Single legal account
  - Consists of (a) a set of virtual transactions/operational sub-accounts used directly by individual companies (part of a group) and the parent company for day-to-day operations; and (b) a top/master group account (held usually by the parent company), which constitutes an obligation of the pooling bank vis-à-vis the beneficiary and concentrates the funds of the group.
  - Virtual sub-accounts only track intra-group positions and do not provide a direct relationship with the bank; information on virtual transactions is usually part of the service provided by the pooling bank but not necessary for the bank’s accounting system and should be in a separated system.
  - From the bank’s point of view, only changes in the top/master account should be reported as this reflects changes in its claims vis-à-vis the parent company, the only direct client in this cash pool type.
  - A special purpose entity could also be set up to hold the top/master account; for simplicity, the parent company is assumed to hold the top/master account.
- Physical cash pool
  - Each participating company holds an account with the pooling bank and there is a master account usually held by the parent company. Balances of surplus accounts are transferred to the master account on a regular basis (e.g., on a daily basis at close of business); the parent transfers liquidity from the master account to deficit accounts at end of the period (day).
  - All participating companies are counterparties of the bank; deficit balances from pooling participants appear only temporarily as assets on the bank’s balance sheet.
  - Two types:
    - Zero-balancing cash pool: full balance of surplus accounts is transferred to the master account on a regular basis.
    - Target-based cash pooling: specifies a (positive) threshold whereby when individual account balances exceed the threshold, liquidity is transferred to the master account, and conversely liquidity is transferred from the master account when balances are below the threshold.
- Notional cash pool
  - All bank accounts represent legal relationships between the pooling bank and participating entities, making them direct counterparties of the bank. Pooling is performed by creating a notional top/master account that virtually consolidates positions but does not represent a resource or obligation of the bank.
  - No liquidity transfers resulting in inter-company loans take place; funds remain in the assets of the bank as a loan to a particular participating entity. Following the cash pooling structure, the loan is guaranteed by cash pooling members, subject to lower charges, restrictions and implicit interest, and typically can only be drawn upon to the extent that the overall pool has a positive net balance.

### Key classification and recording issues
- Cash pooling is not per se a financial instrument; it is a bank arrangement that involves deposits and loans between participants. Proper classification requires identifying the cash pooling arrangement type to determine the actual debtor and creditor.
- Bank reporting should be able to identify real from virtual transactions; internal bookkeeping entries in virtual accounts should not be seen as bank transactions/positions.
- Parent and subsidiary companies should be able to report internal booking entries as intercompany lending (assets and liabilities) depending on fund direction (creditor or debtor).
- Cash pooling arrangements need identification via Direct Investment (DI) surveys when they take the form of single legal account or physical cash pool.
- If an overdraft or loan is received by a pooling participating subsidiary and covered by a single legal account or a physical cash pool, the creditor is the parent company (holder of the top/master account) and the recording is done as inter-company loans in DI (except for the debt between affiliated financial intermediaries, specified in BPM6 paragraph 6.28).
- If the overdraft or loan is based on a notional cash pool, the creditor is the pooling bank and the debt should be recorded in other investment (unless there is a DI relationship between the bank and the debtor that is not subject to the recommended classification in BPM6 paragraph 6.28).
- Misreporting cash pooling activities can lead to net errors and omissions, geographical asymmetries and a decrease in the quality of the functional category split in the financial account.

### Outcomes from DITT review discussions
- Drafting teams’ recommendation and DITT discussions confirmed the need to include a description of the types of cash pooling arrangements and their different statistical treatments under Appendix 6a: Topical Summary—Direct Investment and to include some examples in the updated compilation guide.
- The proposed statistical treatment complies with current standards; detailed descriptions and examples will help reporters and analysts adhere to the debtor/creditor principle.
- DITT members generally did not see problems in bank reporting of the debtor/creditor counterpart involved in cash pooling arrangements, although such arrangements are not separately reported in most cases.
- It was agreed that information from virtual bookings is not reported by banks and therefore cannot generate double counting.
- Reporting by DI companies was more heterogeneous: most countries do not identify cash pooling separately in DI surveys. This is not considered problematic if reporters correctly identify actual debtors and creditors rather than the payment service provider. A few members reported occasional respondent questions; clarifications and descriptions in the updated manual would be helpful.

### Questions for Discussion (as posed)
- Do you consider it relevant to include a description of the main types of cash pooling arrangements and their different statistical treatments in the updated BPM? Would it also be relevant to include some examples in its updated compilation guide?
- Do you see any potential problem in how companies are reporting cash pooling—that is, in the identification of the debtor/creditor counterpart depending on the type of cash pooling arrangements?

*Prepared by Iustin Mihailescu and Carmen Picón Aguilar (European Central Bank—ECB) with input from Borys Cotto (International Monetary Fund—IMF).*

### Annex I. Recording Cash Pooling Structures in the Balance of Payments and International

### Annex I. Recording Cash Pooling Structures in the Balance of Payments and International Investment Position Statistics

### Single Legal Account
- Definition:
  - Consists of (a) virtual transaction/operational sub-accounts used directly by individual entities (part of the group) and the parent company for day-to-day operations; and (b) a top/master group account (held usually by the parent company) constituting an obligation of the bank vis-à-vis the beneficiary and concentrating the funds of the group.
  - Virtual transaction sub-accounts only track intragroup positions and do not provide a direct relationship with the bank; the bank’s accounting system may not have detailed information on individual entities.
  - The cash pool may include more than one transaction sub-account per entity or be built separately for different currencies.
- Bank perspective:
  - Only changes in the top account reflect changes in the bank’s claims vis-à-vis the parent company.
  - When a pool member transacts with a non-group entity, the bank debits (credits) the top account.
- Scenario 1.1 (example structure and initial recording):
  - Group composition: Parent Company A (resident Country A) and subsidiaries B, C, D (resident Countries B, C, D).
  - Top account held by Company A with Bank X (resident Country A).
  - Cash pool: 100 EUR (40 from the parent, and 20 from each of companies B, C, D).
  - From Country A reporting viewpoint: two reporters — Bank X (S12T) and Parent Company A (assume part of sector S1P).
  - Cross-border transfers from B, C, D to the top account are recorded in balance of payments and IIP (the deposit by Parent Company A is a domestic transaction and not included).
  - Result: increase of assets of the banking sector of Country A vis-à-vis countries B, C, and D; balance sheet of Bank X records an overnight deposit liability of 100 EUR with the parent company.
- Table summary (Country A — Single Legal Account):
  - Opening position: Financial account Assets 1000, Liabilities 0.
  - Transactions: Assets +60, Liabilities +60.
  - Closing position: Assets 1060, Liabilities 60.
  - Intercompany loans (Direct investment): Opening 0; Transactions +60; Closing 60.
  - Currency & Deposits/loans (S12T): Opening 1000; Transactions 0; Closing 1060 assets and 0 liabilities.
  - Net I.I.P. / net errors and omissions: 1000 assets, 0 liabilities.
  - Balance sheet note: Bank X records an overnight deposit of 100 EUR as a liability with the parent company.
- Scenario 1.2 (transaction where Company B purchases a debt security worth 30 EUR issued in Country Z):
  - Payment flows through the top account; top account is debited 30 EUR.
  - Accounting outcome: elimination of inter-company loan of B to A and creation of a loan of A to B worth 10 EUR.
  - Table summary (Countries A and B):
    - Country A: Opening Financial account Assets 1060, Liabilities 60; Transactions Assets -20, Liabilities -20; Closing Assets 1040, Liabilities 40.
    - Country B: Transactions Assets +10, Liabilities +10.
    - Currency & Deposits/loans (S12T) for Country A: Opening 1060 assets; Transactions -30; Closing 1030 assets.
  - Balance sheet note: Bank X records an overnight deposit of 70 EUR as a liability with the parent company.

### Physical Cash Pool
- Definition:
  - All accounts in the pool represent either a resource or an obligation of the bank vis-à-vis participating entities; participating entities are direct counterparties of the bank.
  - Deficit balances of pooling participants appear temporally as assets on the bank’s balance sheet.
- Types:
  - Zero-balancing cash pool: balances of surplus accounts are transferred to the master account regularly (e.g., daily close); parent transfers liquidity to deficit accounts at end of period/day.
  - Target-based cash pool: a positive threshold is specified; balances above threshold transfer to master account; balances below threshold receive liquidity from master account.
- Scenario 2.1 (target-based example):
  - Group composition: Parent (Country A) and subsidiaries B, C, D (Countries B, C, D).
  - Master account held by parent with Bank X (Country A); Companies B, C, D have individual accounts at Bank X with 20 EUR each.
  - Threshold: 10 EUR.
  - End-of-day result: 10 EUR left in each subsidiary account; intragroup loans in BOP arise as companies B, C, D are nonresidents of Country A; loans to parent amount to 10 EUR for each company (total 30 EUR).
  - Bank X records a decrease in liabilities—currency and deposits—of 30 EUR vis-à-vis companies in countries B, C, D; those 30 EUR become a domestic obligation to the parent company.
- Table summary (Country A — Physical Cash Pooling):
  - Opening position: Financial account Assets 1060, Liabilities 60.
  - Transactions: Intercompany loans +30; Currency & deposits/loans (S12T) Transactions -30 liabilities change.
  - Closing position: Financial account Assets 1060, Liabilities 30.
  - Net I.I.P. / net errors and omissions: 1000 assets, 0 liabilities.
  - Balance sheet note: Bank X records overnight deposits (liabilities) vis-à-vis A (70), B (10), C (10), D (10).
- Scenario 2.1 (subsequent month transaction — Company B purchases debt security issued in Country Z worth 30 EUR):
  - Company B instructs Bank X; B only has 10 EUR and uses cash pooling, resulting in a temporary overdraft of 20 EUR shown in Bank X’s balance sheet (payment via individual account of B).
  - End-of-day: parent transfers 30 EUR from master account to cover overdraft and restore target of 10 EUR for B.
  - Outcome: reduces loan assets vis-à-vis parent by 10 EUR and gives rise to an intragroup loan asset of 20 EUR (parent to B); Bank X’s assets abroad reduction recorded as a reduction in assets (currency & deposits) for Other MFIs.
- Table summary (Countries A and B for the transaction):
  - Country A: Financial account Opening Assets 1060, Liabilities 60; Transactions Assets -10, Liabilities -10; Closing Assets 1050, Liabilities 50.
  - Country B: Transactions Assets +20, Liabilities +20.
  - Portfolio investment entry reflecting 30 EUR purchase.
  - Currency & deposits/loans (S12T) Country A: Opening 1060 assets; Transactions -30; Closing 1030 assets.
  - Balance sheet note: Bank X records on the liability side overnight deposits of EUR 40 (A), 10 (B), 10 (C), and 10 (D).

### Notional Cash Pooling
- Definition:
  - Accounts represent a legal relationship between the bank and participating entities; participants are direct counterparties of the bank.
  - The bank creates a notional top account that virtually consolidates positions but does not represent a resource or obligation of the bank.
  - No liquidity transfers occur; therefore no inter-company loans arise from end-of-day pooling.
- Scenario 3.1 (initial positions):
  - Parent company deposit: 40 EUR; subsidiaries B, C, D deposits: 20 EUR each.
  - After pooling, Bank X keeps liabilities vis-à-vis the same counterparts; no intra-group loans recorded.
  - Aggregate cross-border positions between companies B, C, D and Bank X resident in Country A give rise to an aggregate liability position of 60 EUR.
- Table summary (Country A — Notional Cash Pooling):
  - Opening position: Financial account Assets 1060, Liabilities 60.
  - Transactions: none affecting intercompany loans or currency & deposits/loans.
  - Closing position: Financial account Assets 1060, Liabilities 60.
  - Net I.I.P. / net errors and omissions: 1000 assets, 0 liabilities.
  - Balance sheet note: Bank X records overnight deposits (liabilities) vis-à-vis A (40), B (20), C (20), D (20).
- Scenario 3.2 (Company B purchases debt security issued in Country Z from a nonresident valued at 30 EUR):
  - Payment goes through individual account of B; B lacks sufficient funds, resulting in an overdraft of 20 EUR in its individual account shown on Bank X’s balance sheet.
  - No end-of-day liquidity flows; the structure is technical and balance sheets remain as if operations were via individual accounts.
  - Funds relating to the overdraft remain assets of the bank as a loan to Company B, guaranteed by cash pooling members, subject to lower charges, restrictions and implicit interest; accessible only to the extent overall pool has a positive net balance.
  - Accounting outcome: reduction of 20 EUR in the liabilities of Bank X vis-à-vis Country B since this deposit no longer exists as an asset of B; a new asset of Bank X vis-à-vis Country B arises due to the overdraft (10 EUR).
- Table summary (Countries A and B for the transaction):
  - Country A: Financial account Opening Assets 1060, Liabilities 60; Transactions Assets -20, Liabilities -20; Closing Assets 1040, Liabilities 40.
  - Country B: Transactions Assets +10, Liabilities +10; Portfolio investment entry reflecting 30 EUR purchase.
  - Currency & deposits/loans (S12T) Country A: Opening 1060 assets; Transactions +10, -30, -20 effects reflected; Closing 1040 assets.
  - Currency & deposits/loans (S1P) Country B: Transactions -20, +10 entries reflecting overdraft movement.
  - Balance sheet note: Bank X records on the asset side a loan of 10 (B) and overnight deposits (liabilities) vis-à-vis A (40), C (20), D (20).

---


_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/ditt/d18-cash-pooling-in-direct-investment.pdf_