A year out from the spectacular failure of Silicon Valley Bank, turmoil in the banking sector still plagues corporations in the Americas and EMEA, according to a newly released survey of 157 treasury professionals responding to the annual client survey of ICD, an institutional investment technology provider.
According to the 2024 ICD Client Survey, which closed in February, 80% of respondents say they are highly or moderately concerned with bank failures, while 74% say they are concerned with counterparty concentration risk. Of the 61% who say they have changed the way they have managed counterparty risk since March 2023:
- 37% – Changed the way or frequency of monitoring risk
- 21% – Updated investment policy restrictions
- 18% – Changed their investment strategy
- 17% – Added or removed investment products to their available mix
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“The banking turmoil of last March has had a lasting effect on corporates, who remain concerned about the banking sector,” says ICD CEOÂ Tory Hazard. According to ICD’s client survey, only 30% of respondents in the Americas say they are investing in or planning on investing in Demand/Bank Deposits, down from 49% in 2023, while 90% of all respondents say they are increasing or maintaining investments in money market funds.
Concerns about bank turmoil are not unfounded as New York Community Bank (NYCB) reported a fourth-quarter loss of $260 million in late January. According to Tony Carfang, Managing Director of the Carfang Group, 1,467 of the 4,587 U.S. banks would fail a stress test that defines stress as a 25% loss of a bank’s capital and assumes a severe adverse scenario of a 10% loss in their commercial real estate portfolio and 5% loss on their held-to-maturity securities.
“We’ve worked with our clients over the past year to introduce an automated solution to the arduous, manual process of collecting, aggregating and monitoring positions from bank deposits, direct investments and underlying holdings from fund and separately managed accounts. Our cloud solution for portfolio analytics leverages AI to create a single data set of our clients’ entire investment portfolio so they can effectively manage counterparty risk,” Hazard says.
ICD Portfolio Analytics launched last October. The solution’s counterparty exposure report contains leading indicator metrics, including equity pricing and credit default swaps (CDS) that help clients evaluate the relative financial strength of their portfolio counterparties. Over the course of the 12 months leading up to the run on Silicon Valley Bank, the bank’s stock price fell over 50%, significantly underperforming its peers. Similarly, in the year leading up to Credit Suisse’s collapse, the bank’s CDS priced four times higher and widened 20 times more than the bank’s peer group.
“ICD Portfolio Analytics reporting would have given practitioners actionable intelligence to mitigate counterparty exposure leading up to the March 2023 banking failures,” Hazard says.
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