Concerns about the risk of bank failures persist among corporate finance leaders, according to a recent survey
In the ever-evolving landscape of corporate finance, a new emphasis on liquidity has emerged as a core pillar of financial resilience in the United States during 2024. This shift is driven by several key factors, including heightened market uncertainty, strategic portfolio allocation, regulatory considerations, and changed corporate cash holdings.
The ongoing trade tensions, such as U.S.-China tariffs, and geopolitical risks in regions like the Middle East have amplified uncertainty and market volatility, prompting companies to prioritize liquidity to safeguard against sudden shocks. Corporate credit has demonstrated a negative correlation with equities during times of market stress, making liquidity-rich assets more attractive as a buffer against equity downturns.
In response, most organizations now allocate an average of 80% of their short-term investments to highly liquid vehicles such as bank deposits, money market funds (MMFs), and Treasury securities. Bank deposits alone account for 46% of the typical organization’s short-term investments. There has also been a notable transition away from floating NAV Prime funds in favor of more stable and predictable liquidity sources.
Ampersand Chairman and CEO, Kelly Brown, suggested that the emphasis on liquidity now is due to continued fear regarding bank safety and soundness. Corporate financial decision-makers are willing to sacrifice some amount of return to ensure their banking partner's values align with theirs.
There is significant uncertainty regarding the timing of achieving real-time liquidity. As a result, corporate finance leaders are increasingly relying on the Federal Reserve to provide the necessary infrastructure to ensure market preparedness and smooth access to liquidity. Diversification of liquidity sources and access to federal liquidity facilities are now regarded as essential for effective liquidity management.
Thirty-eight percent of corporate practitioners reported an increase in their organizations’ cash holdings within the U.S. over the past year, while only 16% reported a decrease. Most organizations maintained the same or increased levels of cash and short-term balances outside the U.S., but a large majority—almost two-thirds—still hold some cash abroad, reflecting a global liquidity management strategy.
A survey by Ampersand Inc. shows a heightened interest in liquidity and flexibility features among corporate finance leaders. The survey results, based on responses from over 250 executives or senior managers in various sectors, can be found here. Quality deposits will stay with a bank or credit union long past any interest rate chase, according to Brown. Supporting the community and key initiatives that align with a corporation's values is a form of corporate social responsibility, according to Brown.
Depositors would greatly improve their experience with their financial institution if they were assured of liquidity. Forty-three percent of depositors surveyed cited liquidity as a key concern for their future banking practices. Priority for liquidity is more important to respondents this year compared to the same question asked a year earlier.
Seven in ten depositors have changed their deposit behavior due to safety and soundness concerns. Ninety in ten depositors are willing to give up a portion of their return if their financial institution can guarantee deposit safety while being values-aligned. Ninety out of ten depositors cited safety and soundness as a concern.
Rachel Koning Beals is Senior Editor with the brand mentioned in the article. Six in ten depositors are limited in their ability to select a financial institution due to loan requirements, an increase from last year's survey.
In the digital transformation of banking, banking relationships, including communicating values and efforts toward safety and soundness, should not be an afterthought. By prioritizing liquidity, corporate finance leaders are emphasizing the need for a reliable, values-aligned banking partner that can provide the necessary infrastructure to navigate the uncertain economic climate.
- In the uncertain economic climate, corporate finance leaders are prioritizing liquidity, indicating a need for a reliable banking partner that aligns with their values and provides necessary infrastructure.
- The ongoing emphasis on liquidity in corporate finance is driven by factors such as market uncertainty, changed corporate cash holdings, and concerns about bank safety and soundness.
- As a result of these concerns, most organizations are allocating a significant portion of their short-term investments to highly liquid vehicles like bank deposits, money market funds (MMFs), and Treasury securities.
- Depositors value liquidity and safety, with 90 out of 100 depositors willing to give up a portion of their return if their financial institution can guarantee deposit safety while being values-aligned. Personal finance and business relationships, therefore, play a crucial role in navigating these uncertain times.
