Keep cash out of the banks? Why companies are shifting resources elsewhere

Heads up: Inflation and bank failures are spurring more companies to put their cash where’s it safer and can grow.

The Association for Financial Professionals (AFP) reports that companies’ cash and short-term allocations toward bank deposits dropped in recent weeks to 47%.

Last year at this time, the deposit rate stood at 55%. According to the AFP’s 2023 Liquidity Survey Report, “the current share in bank deposits is one of the lowest recorded in five years [and is] being driven by the [spring 2023] bank failures.”

Companies are moving cash and short-term investments to:

• government/Treasury money market funds (up by 4% from a year ago)
• T bills (up by 2%), and
• agencies (also up 2%).

Until the Federal Reserve starts lowering interest rates, more companies are liable to eye T bills as a safe investment. The Fed seems intent on raising rates at least two more times by the end of the year. Investors are bullish on T bills because you don’t have to wait long to make a guaranteed profit. For example, the three-year T bill rate is at 5.15%.

CFOs are worried about banks, focused on safety

It’s a good bet more CFOs will drain deposit accounts further in coming months. The AFP survey finds “38% of treasury professionals … plan to continue increasing cash allocations to money market funds into the next year.” Just 8% of respondents expect to pull back from investing in funds.

Overall 27% of financial execs say their companies will put more money in the bank, while 25% plan to decrease their deposits. Bottom line is, CFOs are just about split down the line when it comes to confidence in the banks.

The three primary objectives of CFOs for their organizations in 2023 are:

• safety (cited by 63%)
• liquidity (33%), and
• yield (4%).

Interestingly enough, safety scored higher for finance chiefs of companies generating at least $1 billion in revenue (56%) than those from less profitable companies (66%).

(The AFP surveyed 222 treasury and finance professionals.)