CFOs plan to diversify deposits across more banks after recent failures
CFOs are assessing their own funding sources for risk, educating the board on potential exposures and evaluating customer exposure and payment risks
CFOs are assessing their own funding sources for risk, educating the board on potential exposures and evaluating customer exposure and payment risks
More than one in four CFOs said they plan to diversify their deposits across more banks after recent high-profile bank failures, according to new research published today (March 16).
Gartner polled over 250 CFOs and senior finance leaders on March 13, 2023, on their responses to recent bank failures and financial sector instability.
On March 8, Silicon Valley Bank collapsed following a bank run. The US government stepped in to protect customer deposits, and HSBC plans to purchase the U.K. portion of Silicon Valley Bank (SVB). It was the 16th largest bank in the US.
On March 15, Credit Suisse saw its shares fall by as much as 30% prompted by comments from the bank’s largest shareholder, Saudi National Bank (SNB), which said it was unable to stump up more cash because of regulatory restrictions limiting its holding to below 10%.
Today, the Swiss banking giant announced it would take a CHF50bn ($53.7bn) loan from the Swiss National Bank, in an action it says will “pre-emptively strengthen its liquidity” as it moves to stem a crisis of confidence a day after its share price plummeted.
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.
To explore alternative funding options, CFOs can consider sources of financing beyond traditional bank loans, such as private equity, venture capital, or mezzanine financing. For some, it may even involve exploring financing options like crowdfunding or peer-to-peer lending.
“The data shows that CFOs are clearly concerned about second and third-order effects from this unfolding banking crisis,” said Alexander Bant, chief of research, in the Gartner Finance practice.
“While the immediate risks may have been stemmed by swift government action, CFOs are rightly assessing potential impacts to their own funding and that of their customers and suppliers.”
Gartner’s research showed about one-third of CFOs are taking immediate action to reduce risk and ensure the viability of financing their organisations. “CFOs have a short window to ensure security of their assets, payments, and funding in case things deteriorate further across the banking sector,” Bant says.
Eighty-five per cent of CFOs expressed concern about the impact of bank failures on their current operations, while 18% noted they had some level of exposure to one of the failing banks.
The top actions CFOs are taking, or planning to take, including assessing their own funding sources for risk, educating the board on potential exposures and evaluating customer exposure and payment risks.
Adjusting financial strategies to minimize risk exposure involves reviewing and adjusting current financial strategies to ensure they align with the organisation’s risk tolerance and objectives.
CFOs can consider implementing hedging strategies to mitigate risks associated with foreign currency exposure or interest rate fluctuations, as well as adjusting debt-to-equity ratios or changing the mix of short-term and long-term financing options.
Despite government assurances that uninsured deposits will remain accessible, there is a sense of uncertainty among some CFOs about how the crisis will evolve, and there is a new focus on concentration risk 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 are still unclear and despite regulatory assurances, CFOs with concentrated positions at any one institution will prioritise diversifying their deposits as matter of urgency.”