Treasurers moved on counterparty risk before bank failures

Survey reveals treasurers were already concerned about bank and other counterparty risk ahead of turmoil  

According to a new survey, some 80% of treasury teams in US and Europe were moderately or highly concerned with bank and other counterparty risk even before the recent turmoil in the banking sector.

The survey, carried out by investment portal ICD in February 2023, also found that more organisations are increasing or maintaining cash balances in the first six months of 2023 (74%), compared with 2022 (70%).

Some 61% of respondents say they either updated their investment policies last year or will do so in 2023. Current or planned investments in bank time deposits from the Americas were down 31% from last year, indicating a move away from single counterparty risk, with 93% of respondents planning to increase or maintain their MMF investments in 2023, up from 81% last year.

“The vast majority of corporate treasury teams are risk averse and invest in money market funds to diversify their cash portfolios, maintain daily liquidity and earn a competitive yield,” said Tory Hazard, chief executive officer at ICD.

Highlights

Other highlights from the survey show:

• 74% of treasurers expect to maintain or increase cash balances in the first half of 2023
• 90% of American respondents indicated they are investing in US government MMFs
• 86% of UK/Europe respondents indicated they are investing in short-term low volatility net asset value (LVNAV) MMFs
• 55% of treasury teams are currently engaged in or are planning a technology project
• 23% of treasury teams say they are implementing a treasury management system this year

Flight to MMFs

The flight to safety revealed by the ICD survey is backed up by news that the money market funds have been experiencing record inflows as investors sought a safe haven during the banking crisis. Amid the recent turmoil, the US Money Market Funds tracked by EPFR absorbed more than $286bn in March this year. That influx accounted for more than half of their total dollar inflow year-to-date, EPFR said.

According to reports, the were smaller net inflows in January and February, which set the stage for the strongest quarter for US money funds since the out of the COVID-19 pandemic three years ago.

The pace of inflows accelerated during March, particularly from large depositors looking for safe havens. While US officials agreed to guarantee all of the deposits at SVB and Signature Bank, they have not guaranteed those above $250,000 at other institutions.

The surge in inflows during March helped push overall assets in MMFs to a record $5.1 trillion, according to Bank of America.

About the author

Philip Smith is editor of The Treasurer