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Top actions CFOs are taking after recent bank failures

Three days after the collapse of Silicon Valley Bank (SVB) and one day after the closure of Signature Bank, Gartner polled over 250 CFOs and senior finance leaders to ascertain their responses to recent bank failures and financial sector instability.

“More than one in four CFOs said they plan to diversify their deposits across more banks after recent high-profile bank failures”, according to Gartner. Presumably, this corrective action to diversify deposit accounts or banking partners is being done to avoid dependence on a single bank’s ability to remain operational and solvent.

Given that the Gartner survey highlights that 85% of CFOs have expressed concern about the impact of bank failures on their current operations, while 18% have noted they had some level of exposure to one of the failing banks, finance chiefs and corporate treasurers are keeping a close watch over the ongoing banking turmoil, including interest rates, bank liquidity and deposit management. They are also responding to the two bank collapses by taking or planning to take actions to mitigate risk related to recent bank failures.

CFOs actions and planned actions in response to banking chaos

“The top actions among CFOs following the failures include educating their boards on current risk exposures and assessing the risk and viability of current funding sources”, the study noted.

Above diversifying deposit base, many finance chiefs are using the banking sector chaos as an opportunity to re-evaluate internal and external risks. This is because “CFOs have a short window to ensure security of their assets, payments, and funding in case things deteriorate further across the banking sector”, states Alexander Bant, chief of research in the Gartner Finance practice.

He adds, “The data shows that CFOs are clearly concerned about second and third-order effects from this unfolding banking crisis.”

“While the immediate risks may have been stemmed by swift government action”, Bant further adds, recent events have caused finance decision-makers to act proactively. Educating their boards (39%) about exposure to bank failures and the potential risks to the organization, assessing risks and potential impacts to their own funding (38%) and that of their customers (34%) and suppliers (30%) are immediate actions that CFOs have taken to mitigate risk in response to the recent bank closures.

Given that we are in the early days of the bank failures, there is a sense of unease among some CFOs about how the crisis will evolve. This is despite the US government’s assurance that uninsured deposits will remain accessible.

The implosion of two banks has finance chiefs worried, even as concentration risk contributed to the downfall of SVB. The consequences of concentration risk can be dire, which is why it has become a focal point for CFOs and their boards.

“This crisis has brought concentration risk into the spotlight, with some companies having upwards of 25% of their cash reserves caught in a failed bank”, said Bant. “The extent and nature of this crisis is still unclear and despite regulatory assurances, CFOs with concentrated positions at any one institution will prioritize diversifying their deposits as matter of urgency.”

Furthermore, CFOs are scrambling to improve cash visibility (17%) and are paying attention to managing counterparty risk. Assessing and rebalancing counterparty risk (17%) that includes key vendors and ensuring that business continuity plans include scenarios in which a banking partner is no longer available to provide treasury services are important actions that have been initiated by finance leaders.

To minimize the risk of a significant loss if one banking partner were to fail, corporations can use IntraFi® Network Deposits (formerly Certificate of Deposit Account Registry Service, or CDARS), which comprises a network of more than 3,000 American banks and savings institutions. One of the primary benefits of IntraFi Network Deposits is the ability to diversify counterparty risk by spreading deposits across multiple financial institutions to reduce exposure to any single bank.

IntraFi deposits eliminate the need for businesses to go from bank to bank to deposit funds. Companies can create an account with one custodial bank in the network that will then spread an organization’s total deposit amount out over different FDIC-insured banks. These deposits can be placed in demand deposit accounts, money market deposit accounts or certificates of deposit (CDs).

To conclude, CFOs have faced a barrage of challenges since the advent of the COVID-19 pandemic, and the recent bank failures may for now become their most immediate concern and leading priority. Thinking about systemic risks from different perspectives and being proactive in anticipating, assessing, measuring, monitoring, mitigating and communicating risks is what will help them march ahead and find opportunity in the midst of chaos.

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