In AFP’s New Liquidity Survey, Banks Are the Big Winners

Jul 13, 2016

Tom Hunt CTP, Director of Treasury Services, AFP

The 11th annual AFP Liquidity Survey comes out today—and what’s remarkable, is it has nothing to do with the liquidity numbers.

To be sure, it’s always good to know what corporate treasury and finance professionals are doing with their organization’s money. Consider:

  • 55 percent of corporate cash holdings are maintained at banks.
  • 71 percent of organizations with cash and short-term investment holdings outside the United States maintain most of their holdings in bank-type investments, including certificate of deposits and time deposits.
  • The share of treasury and finance professionals reporting safety as a top corporate investment objective increased from 65 percent in 2015 to 68 percent in 2016.

None of the above findings should surprise you. Corporate treasury and finance professionals prioritize security of their short-term cash, especially post-2008, in case of emergency. After all, what’s the point in liquidity if you can’t access it—or, worse, if it evaporated in a risky investment?

If the liquidity numbers in the 2016 AFP Liquidity Survey weren’t earth-shattering, then what was surprising? This:

  • 90 percent of treasury and finance professionals cite their overall relationship with their bank as an important determinant when choosing which bank to place their organization’s cash and short-term investments. That’s up from 85 percent in 2015 and 72 percent in 2014.
  • The credit quality of the bank is only the second most important factor considered by corporate practitioners when choosing their banking partner (67 percent). It’s the first time in the survey’s history that credit quality fell below overall relationship.
  • 85 percent of respondents cited banks as resources their organizations use to access information about operating cash and short-term investment holdings.

My take on this? Bank relationships continue to grow in strategic importance for treasury and finance professionals. Relationships—not products—is the primary driver when choosing where to hold bank deposits, and they play a role in sponsor-selected money market funds, both on-shore and off-shore. The mere fact that corporate practitioners value the relationship with their bank above the bank’s credit rating for the first time also indicates a much stronger confidence in the banking industry. They even trust their banking partners as the most important information source for short-term investment information.  Credit, then, should go to the banks. They have responded to treasury and finance professionals’ requests for more information and expertise—and they are being rewarded.  As for treasury and finance professionals who rely so heavily on banks, my only advice is this: Be prudent. Banks are doing a good job right now, but you can’t grow complacent. Your organization’s liquidity depends on it.