Can you bank on your bank?

A year ago, Signature Bank’s COO said the bank was “nowhere near” the FDIC’s “problem bank” list. A month ago, Silicon Valley Bank was named to Forbes’ inaugural Financial All-Stars list. A week ago, it had been 868 days since a U.S. bank failure. How quickly things can change. And more specifically, how quickly liquidity can change.

Thanks to the decisive actions taken by the U.S. Treasury, FED, and FDIC, confidence in the banking system may be on the rise. However, the collapse of two large banks is sure to keep executive leadership teams up at night wondering (or maybe worrying) about their organization’s liquidity and risk management readiness.

Stay a step ahead

Not sure how to respond to systemically important U.S. banks failing? You aren’t alone. Here are three recommendations to help you get ahead of a future crisis:

Diversify your business

• Diversify your deposit, payment, investment, and credit relationships to limit idiosyncratic risk
• Consider using an automated insured deposit sweep service to minimize uninsured balances
• Ensure the Heads of Treasury and Risk Management are included in the organization’s strategic planning process to proactively solicit alternative insights from these leaders before key decisions are made

Plan your defense

• Develop a liquidity crisis playbook as part of a broader business continuity framework
• Embrace real-time cash visualization, payments, and financial instrument management technologies to execute your liquidity crisis playbook. Investments in these capabilities, often via a treasury management system such as Kyriba, offer an immediate return in daily operational efficiencies.
• Cultivate a drive for continuous liquidity planning process improvement and test/refine your liquidity crisis playbook on an ongoing basis

Manage your exposure

• Promote utilization of hedging programs to mitigate material risks, reduce volatility, and maintain organizational agility
• Evaluate counterparty risk silos and interconnectedness across key financial institutions, vendors, customers, industries, geographies, etc.
• Establish warning and critical thresholds with clear de-escalation requirements to manage counterparty exposure and liquidity. Critical threshold breaches should be reported to the Board of Directors or a delegated Risk Oversight Committee.

Ready to rethink your approach to liquidity and risk management? Need more guidance on how or where to start? Let us know—we’re eager and ready to help.

Want a closer look at what happened with Silicon Valley Bank? Read more here.