The failure of Republic First Bank in late April was the first event of 2024, and it was a small potato. Republic First had just $6 billion in assets and $4 billion in deposits, which was easily absorbed by neighboring Fulton Bank in Pennsylvania. But even the small failure served as another reminder to Treasury executives of the current dangers lurking in the U.S. banking system. High interest rates keep banks' funding costs high, putting pressure on borrowers' ability to repay their debts.
Since the financial crisis, protecting a company's cash held in bank deposits has become a top priority for smart treasury teams. But the issue could become even more complicated, especially since his FDIC deposit insurance limit remains modest at $250,000 per depositor. To gain insight into the latest best practices for CFOs and treasury departments looking to keep their deposits safe, our Katie Kuehner-Hebert discusses optimizing corporate deposit management and ensuring competitive interest rates. We spoke with Reid Thomas, chief strategy officer at Ampersand, a company that supports .
How can CFOs protect their organization's bank deposits, especially as local banks face financial pressures?
Fears over last year's bank failures are not going anywhere: Our research shows that 55% of executives are concerned about their future security, and more than three-quarters (77%) of depositors are concerned about their future profits. It has been shown that they are willing to give up some of the An institution that guarantees the safety of deposits. To address this issue, CFOs may want to work with experts to scrutinize the safety and soundness of their financial institutions.
Most importantly, CFOs must ensure that all deposits are fully insured by the FDIC. He must either work with multiple banks to ensure no one holds more than the FDIC insurance limit of $250,000, or partner with deposit management companies to facilitate this across the banking network. there is.
In the absence of a partner, the CFO must work closely with the operating bank to understand the strategies used to protect deposits, such as posting collateral.
How do CFOs manage bank concentration risk when lenders impose deposit requirements on borrowers?
Concentration risk remains important, especially as banks seek competitive advantage through specialization. As the specialty loan portfolio grows, so does the bank's need for deposits. Therefore, lenders often make loan agreements conditional on the borrower having a deposit with the bank. This may result in uninsured deposits.
Overall, deposit requirements primarily benefit banks. Nearly a third of savers who responded to our survey said their ability to choose a financial institution is limited by lending requirements. Most of them (90%) will move their savings once they are released from the situation. Borrowers/depositors should enter into borrowing arrangements with a clear understanding of the risk management implications.
What should CFOs know about “impact cash”? What is it, why is it important, and how is it deployed?
Companies are expected to demonstrate to customers and investors that they live their values and make meaningful contributions to society and their communities. “Impact cash” means deploying deposits in a way that supports a company’s important initiatives.
One example is a company that chooses to park its funds with a minority depository institution to fulfill its commitment to diversity, equity, and inclusion. On the other hand, when a sustainability-minded company entrusts funds to partner banks and uses those funds to finance loans to oil companies, it becomes a minefield of value mismatches that can have serious repercussions for a company's reputation and economy. may give.
Impact cash is growing in popularity. Two-thirds of the banking professionals we surveyed said there was growing interest in values-based banking. Additionally, 55% of savers said they would be willing to sacrifice returns for a financial institution that aligns with their values.
What is the role of depositors in the banking industry, and how can CFOs better harness the power of deposits?
Deposits form the basis of all financial institutions and transactions. Without deposits, banks cannot issue loans and the economy cannot thrive. Depositors need to understand that there is value in participating in this system. Building relationships with banks through competitive interest rates and a focus on safety and soundness is essential. Developing a comprehensive deposit management strategy can help keep your funds safer, improve value alignment, and drive revenue growth.
