- More than one-quarter (28%) of CFOs are planning to diversify their deposits across more banks after last week’s high-profile failures of both Silicon Valley Bank and Signature Bank, according to a survey Thusday from Gartner.
- The survey — which polled 250 finance leaders Monday in the aftermath of the collapses — found that the top actions many CFOs were taking was educating their boards on current risk exposures and assessing the risk and viability of current funding sources.
- “CFOs scrambled to gain visibility, understand their risks, assess impact on customers and suppliers, and educate the board,” Alexander Bant, chief of research in the Gartner finance practice, wrote in an email to CFO Dive. “Many CFOs are now waiting to see how this unfolds and ascertain whether there will be any knock-on effects before committing to further actions related to their banking partners.”
The swift collapse of Silicon Valley Bank and Signature Bank has sparked major concerns over bank liquidity.
The bank failures come as Federal Reserve Chair Jerome Powell has consistently raised interest rates this past year. Policymakers may need to raise borrowing costs higher than they forecast in December to combat persistent price pressures, Powell said last week.
Meanwhile, the CFO Leadership Council held an emergency meeting the day SVB failed, in which executives — many of whom were directly affected — traded insights and information. But even finance leaders with no ties to the failures are fielding worried calls from investors and shareholders, looking to confirm the lack of exposure and get feedback, CFO Dive previously reported.
“About one-third of CFOs are taking immediate action to reduce risk and ensure the viability of financing their organizations,” Bant said. “CFOs have a short window to ensure security of their assets, payments, and funding in case things deteriorate further across the banking sector.”
About 85% of CFOs expressed concern about the impact of bank failures on their business, while 18% noted they had “some level of direct exposure to one of the failing banks,” the Gartner survey said.
Bant said CFOs should avoid “shifting deposits too quickly away from banks that are not at risk of failure and harming their relationship rates and terms.”
Waiting for the board to ask questions regarding risk, or acting hesitantly, are other missteps finance leaders should avoid, Bant wrote. “Now is the time to be in proactive education mode about your exposure,” he wrote. “Now is not the time to delay major projects or initiatives due to acute bank failures.”
One corporate finance adviser told CFO Dive he had spoken with a number of CFOs this week who were discussing plans to diversify their deposit accounts, potentially to more than one bank. There was a split in the group: At least one said they wanted to keep their firm's banking with regional or community banks, while others who viewed it as more prudent to move their business to larger banks they deemed safer.
"The consensus of the group was by and large, go to the top ten, top 15 banks, the Wells Fargos," the adviser said adding that many of the executives said it may not be worth the risk to stay with community banks.
Some are acting quickly: At least one person discussed plans to stay up past midnight to move their firm's money out of a regional bank, figuring the bank's website would not be overwhelmed in the middle of the night, according to the adviser.
Following the bank failures, 39% of CFOs said they were focusing on educating their board on exposure and risk, and 38% said they were assessing risk and viability of their existing funding sources, the Gartner survey found.
“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,” Bant said. “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.”