After recent bank failures, many financial leaders started to reassess the institutions they choose to source funding and provide financial services. Although some financial leaders call recent bank collapses “just a blip,” the benefits of operating across various financial institutions are now increasingly more evident.
A recent Gartner survey of about 250 CFOs on March 13 — just three days after the collapse of Silicon Valley Bank and one day after the closure of Signature Bank — found that in response to large-scale insolvency issues and threats banks face, more than a quarter (28%) of CFOs plan on diversifying company deposits across various banks. Presumably, this is to avoid having all of their financial operations dependent on a single financial institution’s ability to remain solvent and operational. The possibility of deposit outflows continues to be a threat to even the largest institutions.
Above diversifying accounts, many financial leaders hope to use the current state of banking and financial services as an executive teaching point and an opportunity to assess both internal and external risks. Thirty-nine percent of CFOs told surveyors at Gartner they plan on educating the board of directors about exposure to bank failures and the potential risks to the organization.
“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.”
Recent events may have catalyzed finance executives into assessing things they were previously overlooking or not assessing at all since the global financial crisis. Over a third of CFOs said they’re assessing both the risk and viability of existing funding sources (38%) and the customer exposure and payment risk (34%). Three in 10 CFOs (30%) also plan on assessing their third-party supplier list.
“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. Despite regulatory assurances, CFOs with concentrated positions at any one institution will prioritize diversifying their deposits as a matter of urgency.”
As noted in the CFO Recession Playbook by Gartner, CFOs who choose to play safe, especially now, may erode potential value, both short and long-term. With the playbook reporting widespread CFO spending increases on digital initiatives, some financial executives may desire to become more conservative in preparation for further deterioration of the global financial system.
CFOs must continue to stick to the strategies that were in place prior to the recent banking collapses, and stick to their growth plans in order to put their companies in the best position to grow, according to Gartner. If the financial system is able to correct either independently or with some type of government intervention, the CFOs who chose to hunker down to preserve their company’s longevity will be leaps behind those who continue to operate with their own company’s goals at the forefront.