City firms are asking banks to devise special financial instruments to protect their income from unforeseen economic fluctuations, the Gazette has learned.

The top 20 law firms have begun asking for bespoke exchange rate and interest rate products to manage financial risk, bankers said.

Tom Wood, corporate director of professional services at Barclays Corporate, which lends to firms from the mid-tier upwards, said: ‘High-end firms still borrow as usual and have straightforward debt, but there have been volatile movements in exchange rates for dollar, pound and euro, which makes it difficult for firms to forecast cashflow. They are looking to ensure that the risk of these fluctuations doesn’t affect their business.’ The complexity of the exchange rate and interest rate instruments being discussed varied according to each firm’s needs, he said.

The top firms are also increasing the number of banks with whom they have relationships, to help negotiate down the price of credit and secure alternative sources of cash in case of further economic turbulence.

Mark Dean, director in the law firm group at Citi Private Bank, said: ‘Since the start of the financial crisis, the cost of credit has gone up, so it’s better for firms’ negotiations if they have three or four banks on their roster – even if, like most, they only have business for two. It improves their bargaining position.’

Bankers said that City firms have begun taking a much keener interest in financial risk management since the start of the year. Wood said that firms are increasingly coming to banks for financial advice rather than simply to borrow money. He said Barclays Corporate has a ‘very strong focus on [firms’] risk management’ and requires firms to have a ‘good understanding of how their cashflow is made up’, and an understanding of how to forecast cashflow, before the bank will lend money.

Wood added that firms remain keen to obtain committed lines of credit, rather than trying to obtain credit on demand. ‘Firms want to make sure they have facilities in place in case things get worse. We haven’t seen increased demand for working capital. A year ago, firms were more concerned about their clients taking longer to pay them, so they needed the capital. Cashflow is now under greater control,’ he said.

At an individual level, Dean said UK-based partners at US firms are asking for exchange rate swaps to protect their personal income from foreign exchange volatility. He has also completed interest rate swaps for partners with large mortgages who are worried about inflation.