Corporate treasurers plan to put more cash into money market funds rather than deposits, according to a new survey that highlights the pressures banks are facing as they strive to hold onto their customers' money.
In a survey conducted earlier this spring, 38% of treasurers said they wanted to increase their allocation of cash to money market funds that invest in U.S. government securities, which they saw as a safe place to put money while also earning some interest.
By contrast, 27% of the survey respondents said they were looking to increase their bank deposits. One in four said they were looking to reduce their bank deposits, according to the survey from the Association for Financial Professionals.
Those results could be worrying for bankers, since money market funds compete with deposits, which have declined at many institutions after the banking turmoil in March.
It's possible that the attitudes of corporate treasurers have changed since the survey was completed. The responses were fielded between March 7, three days before Silicon Valley Bank's failure, and March 30.
Still, the results suggest some fraying of the ties between banks and their commercial clients, which the industry has traditionally counted on as a source of stability. Some 83% of treasury professionals said their relationship with a bank was critical in picking where they placed deposits, down from 93% last year.
"When something rattles the industry, like we saw in March, they're looking at it … with a slightly different lens," said Tom Hunt, director of treasury services and payments at the Association for FInancial Professionals.
Relationships with banks remain important, he said, but treasurers are increasingly wondering: "Where is my risk?"
Companies are already moving more of their cash into short-term investments, primarily by buying Treasury bills or investing in money market funds that buy short-term government securities, the survey found.
Others are still keeping more cash in the banking system — either parking it at larger banks that are viewed as too big to fail or
The Association for Financial Professionals received 222 responses from treasurers and those in similar positions, with 78% of them coming from companies, 13% from nonprofits and 8% from government agencies.
The survey results line up with the deposit churn that banks have been seeing, said Peter Serene, a consultant at Curinos who advises banks on commercial deposits.
Banks are competing heavily for companies' extra cash, both with each other and with higher-yielding options such as money market funds. Even when an institution is a company's primary bank — the place where it keeps cash for its daily payments — it may find that it can't rely on as many funds as it once did.
"Great, you won the primary relationship. But you can't expect to get quite as many deposits with that as you could have in the past," Serene said.
The survey results also pointed to some frustration with banks that have sought to keep the rates they pay to commercial depositors low over the last year. As the Federal Reserve hiked short-term rates aggressively, yields on money market funds rose quickly.
The process of getting higher rates at banks is "not as transparent as corporations would like," according to Hunt of the Association for Financial Professionals. Banks often use one-off exception pricing, and their so-called earnings credit rates can be confusing, he said.
Some corporate deposits technically don't earn interest, but they do get credits that essentially lower the fees that companies have to pay for the services banks provide.
The survey found that transparency in how those credits work is a critical factor in 19% of treasurers' decisions on picking a bank, up from 9% last year.
What's more, the average rate those credits paid in April was just 0.72%, according to Curinos data, compared with more than 2% or 3% on bank corporate deposit and savings accounts, and even higher rates at money market funds. Companies are waking up and doing the math, Curinos' Serene said.
"And they're saying: 'Boy, maybe I should really be changing the way I think about using my cash and use it more to earn interest and less to offset bank fees," Serene said.
In light of the changing market, some banks are paying interest on what were once non-interest bearing deposits — raising their expenses and hampering their profitability.
Banks are a "critical juncture," Serene said. They want to keep their rates relatively low, yet they also want to keep their credibility with clients by helping them to earn more.
"The challenge is, when you do that, it's better for the client. It's not as good for the bank," Serene said. "So the bank stands to see their interest expense increase faster than it gets offset with fee income."
