• Thu. Apr 18th, 2024

Corporate Finance Leaders Still Concerned About Bank Failure, Survey Shows

In the aftermath of 2023’s bank failures, corporate finance leaders are re-evaluating their priorities when it comes to where they hold their organization’s cash deposits. A new survey from Ampersand, a financial services firm focused on deposit management, reveals that safety and alignment with corporate values have taken clear precedence over maximizing returns.

The nationwide survey of 112 C-suite executives, finance managers and banking professionals found a remarkable shift in depositor mindsets. 77% said they would be willing to accept lower returns in exchange for a guarantee that their deposits are safe with a financially sound institution. And 55% would make the same tradeoff to ensure their deposits are held by a bank aligned with their company’s values and ethics – with nearly 4 in 10 of those willing to give up 15% or more in returns to uphold their principles.

“It has got me thinking whether or not I want to put my hard-earned money there,” one finance manager in the hospitality/retail sector told Ampersand, highlighting the lingering impacts of last year’s bank failures on depositor psyches. The failures, coupled with growing scrutiny around ESG issues, have catalyzed a profound re-thinking of how corporations stack rank their banking priorities.

Shaken Confidence in Safety of Deposits

The survey quantified an ongoing erosion of confidence when it comes to the safety of corporate cash reserves. With deposits at record highs in the wake of the banking crisis, a startling 55% of respondents said they are concerned about the future safety of their funds heading into 2024. Nearly half (45%) remained worried about the current safety of their deposits at the end of last year.

This lack of faith persists even though most corporations’ deposits are theoretically protected by FDIC insurance – pointing to a broader crisis of trust in the banking system. As one finance leader said of their organization’s multi-billion dollar deposits: “On paper, our funds should be secure. But after the events of 2023, I’m just not sure I believe that anymore.”

Prioritizing Values Alignment

Beyond just securing their funds, the survey also exposed corporations’ intensifying desire to ensure their banking partners promote their stakeholders’ environmental, social and governance (ESG) philosophies. 60% of financial services respondents said there has been an increase in awareness and concern about ESG issues driving greater interest in values-based banking recently.

This rings true for leaders across industries who face mounting pressure from regulators, investors, customers and employees – particularly younger generations – to ensure all corporate partners meet ethical criteria. As the Ampersand report states, “Should a banking partner use deposits from a sustainability-focused corporation to fund loans for an oil company, it could become a values misalignment minefield – with significant reputational and economic consequences.”

Conversely, banking with specialized Community Development Financial Institutions (CDFIs) or minority-owned banks could showcase an organization’s commitment to social equity and community investment. With nearly two-thirds of financial services respondents saying impact investing has reached a tipping point, demand for values-aligned deposit products will likely only increase.

The Banking Disconnect

Interestingly, the survey also unveiled a striking disconnect between what corporations want from their banking relationships versus what banks think their clients prioritize. While 83% of depositors rated confidence in their bank’s financial strength as a top factor, and 78% said full FDIC insurance coverage was crucial, banks perceived clients to be primarily focused on competitive rates and low fees.

This misalignment suggests banks may need to re-evaluate their understanding of corporate depositor needs in the post-crisis landscape. Those that can showcase financial resilience, FDIC backing, and a values-oriented business model attuned to ESG will likely have a competitive edge.

The Pursuit of Safety, Values and Yield

Crucially, the Ampersand survey revealed corporate finance leaders don’t necessarily have to sacrifice returns to meet their new safety and values priorities. By carefully vetting and diversifying across banking partners, the report states “depositors who bank smartly can have it all: high returns, alignment with their values, and safety.”

Ampersand itself highlights potential yields up to 7.7 times the paltry national savings average of 0.58% through sophisticated deposit management strategies that leverage rate favourable categories of partner banks. This could unlock superior returns while still fulfilling corporations’ governance mandates around ethical, insured partners.

As the corporate world reckons with 2023’s banking crisis, the Ampersand survey signals finance teams are ready to fundamentally re-think how they approach deposit management. With safety, values alignment and returns all top of mind, those that develop nuanced strategies tailored to this new reality stand to strengthen financial resilience while boosting stakeholder confidence.

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