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As Fears of Bank Failure Persist, Corporate Finance Leaders Prioritize Liquidity and Safety
Though the worst of 2023’s banking crisis lasted just five days, its effects continue to haunt corporate finance leaders nearly two years later.
Nine out of 10 executives and senior managers involved in deposit administration said they were concerned about near-term deposit safety and bank failures, according to Ampersand’s second annual Depositor Priorities Survey. Their concerns come against the backdrop of an increasingly volatile financial landscape, as experts predict that hundreds of banks may be at risk of failure and key U.S. bank supervisors undergo dramatic changes.
With depositor anxiety lingering, here’s what the Ampersand survey revealed about how corporate finance priorities are changing—and how banks need to evolve in response.
Deposit Safety and Liquidity Concerns are Top of Mind
In December 2024, when over 250 U.S. corporate finance leaders took our survey, there was ample reason for optimism: inflation was under control, consumer spending was robust, and the market responded positively to the election of President Trump and the expectation of falling interest rates.
And yet fears of bank failures persist. Why? Some might be responding to concerns expressed by experts last summer that up to 300 (largely regional) banks were at risk due to commercial real estate loans, rising interest rates, unrealized securities losses, and dependence on uninsured deposits. That’s what capsized Republic First Bank, one of two bank failures in 2024.
“The same risk factors, unrealized losses on investment securities and heavy reliance upon uninsured deposits, that brought down Silicon Valley Bank also brought down Republic First,” said Rebel Cole, Ph.D., Lynn Eminent Scholar Chaired Professor of Finance in FAU’s College of Business.
Additional vulnerabilities heading into 2025 include mounting risk of fraud and cyberattacks amid increased adoption of third-party technology platforms, credit risks should interest rates remain high, and ongoing uncertainties—regulatory and economic alike—under a second Trump administration.
It’s fitting, then, that the top two areas depositors say would vastly improve their banking experience are assurances that their funds would be liquid and available when needed and that sensitive data is protected by robust security measures. This marks a key change from last year’s report, when just 33% said the same regarding the importance of liquidity.
How Depositors are Responding to Heightened Risks
In response to the above headwinds, 70% of those surveyed have already made changes to their deposit behaviors. The most common shifts involve moving some or all funds to larger banks, using banks’ deposit protection products, and spreading out funds across institutions.
Yet switching banks to achieve these ends remains a key challenge, with 61% claiming their ability to select a new financial institution to hold deposits was limited due to existing loan agreements—a dramatic increase from last year’s survey, when just 38% said the same.
Other obstacles cited when switching banks included additional costs, service disruptions, added complexity and time investments, and complications due to existing banking relationships.
Depositors Willing to Sacrifice Returns for Security and Values Alignment
Deposit security is not account holders’ only priority. Even as environmental, social and governance (ESG) principles face unprecedented scrutiny from regulators and activists alike, the vast majority of financial services professionals surveyed said that demand for values-based banking products has increased in recent years.
Executives point to impact investing incentives and a desire to seek financial returns while aligning with an organization’s moral and ethical principles as key factors driving this growth. This is especially true among Gen Z and Millennial depositors, who place greater emphasis on their banks’ social and environmental values than their Boomer counterparts.
Across the board, depositors are willing to sacrifice potential gains to achieve these priorities. Strikingly, nearly nine in 10 depositors said they were willing to accept a lower rate of return, ranging from 1% to 25%, to have their banking institution guarantee deposit safety and align with their values.
The Need for a Banking Revolution
As corporate finance leaders look for ways to keep their funds safe and accessible while also advancing their core values, banks and deposit administration solutions that offer security, flexibility, and strategic alignment are likely to come out ahead.
Today’s financial institutions need to realize that customers are looking at more than just fees, rates and the bottom line — they want a partner that will support their business and provide safety amid heightened fears of bank failure.
Author:
Kelly A. Brown, chairman and CEO at Ampersand
