In case no one has noticed, the media has been in a feeding frenzy highlighting “concerns” about financial institution solvency, survival, and limitations deposit insurance coverage (or potential lack thereof).
All this largely unwarranted attention is translating into heightened customer awareness and concern regarding institutional relationships. Company treasurers and boards of customer companies are being pressured in their fiduciary capacity to review their banking relationships with greater scrutiny, and unfortunately with an eye toward the “what ifs” that come with this environment.
Just like the directors of your bank, your customers’ boards of directors have fiduciary obligations to their businesses and constituencies. While every customer organization should take care to understand and monitor their depository institution treasury relationships at all times, there are periods in economic cycles when some level of additional due diligence and review may be expected and may be appropriate to address the customer boards’ fiduciary responsibilities. And while this type of review should take place on an ongoing basis as part of the boards’ continuing oversight of the organization and the treasury management function, it can and does take on heightened meaning and focus in an environment where these kinds of issues and relationships are receiving greater scrutiny by the media as well as shareholders and other constituencies. Customer boards are subject to their own fiduciary responsibilities and pressures to examine their banking relationships, and banks may want to take preemptive action to help customers understand the real nature and impact of the current banking environment.
That environment, while largely a creation of an over-hyped media focus, has nonetheless generated heightened public concern, and financial institutions are uniquely subject to public response to “reputation risk” issues. Deposit and liquidity pressures can result from a frightened and concerned customer base irrespective of the reality of the concern. “Industry reports” are issued every day that, together with media headlines, scare the daylights out of bank customers with hype concerning the safety and soundness of the banking system as a whole, as well as specific institutions. Again, while most banks have been untouched by the actual “subprime” issues that triggered this latest onslaught of media coverage and concern, unfortunately (and unfairly) the “splash effect” has impacted the entire industry.
Customer Board Issues
Similar to the obligations of the bank to know and understand their vendors, customers, and other business relationships, your customers need to know and understand their bank. As part of their own “fiduciary” obligations to their constituencies, customer treasurers and customer boards may feel compelled to undertake additional efforts to review and scrutinize their treasury management programs, processes, procedures, and controls, as well as their underlying banking relationships (including the safety and soundness of their banking partners). Shareholder, auditor, and media pressures may combine to heighten the perceived need for customer boards to review their banking relationships with an eye toward performing a more detailed due diligence review of their banking relationships and the financial position of their banks.
The Banker Preemptive Strike
Understanding the fiduciary pressures on their customer organizations, and knowing that those issues and concerns exist and are very real to the customers and their boards, it may be a good time for bankers to initiate a “preemptive strike” and reach out to business customers to address any potential uncertainty and concern. And while they’re at it, bankers may want to take advantage of the situation to learn more about their customer organizations (and coincidentally, perhaps expanded business opportunities).