Bank Smarter: Protect Assets, Reduce Banking Fees, And Enhance Yield
April 1, 20234 mins read
Written by: Finley Horner, Director of Treasury Management

Bank Smarter: Protect Assets, Reduce Banking Fees, And Enhance Yield

Are you losing sleep at night over the safety of your business bank? The recent collapse of Silicon Valley Bank (SVB) has left countless CFOs and treasury service managers reevaluating their risk exposure. But there’s a silver lining to be found if you view SVB’s story as a cautionary tale. From the ashes of SVB’s demise emerge critical lessons for safeguarding your organization’s financial future.

Are You Making This Common Mistake?

Reliance on community or regional banks like SVB is common among mid-market companies. After all, such smaller banks typically offer exemplary customer service and a personalized touch. You may also be bound to your current bank by credit facilities, lock boxes, and other services that would be difficult to shift to a new financial institution.

However, the failure of SVB highlights the need to continually evaluate your banking relationship. Even if you ultimately stay with your current bank, it’s important to explore alternatives that can mitigate risk while also cutting costs and enhancing yield. Mid-market organizations can learn from SVB’s example, taking the following steps to mitigate risk of a bank failure negatively impacting their finances.

Mitigate Risk With a Multi-Bank Approach

During more than 30 years in banking, I’ve observed many economic cycles. That’s why I encourage companies to develop a multi-bank solution. Depending on a key bank can put your organization at risk as surely as relying too heavily on a key person.

Having at least two banks, possibly more, reduces your risk and expands your options. To enhance your organization’s financial agility, consider duplicating services at different banks. This approach can make it easier to shift services as needed should you have concerns about a bank’s stability or simply want to optimize fees.

In a recent poll of 250 CFOs and senior finance leaders by Gartner, 28% of those surveyed said they plan to diversify deposits across more banks.

The time to vet a bank is before a financial crisis occurs. Start exploring your options now to develop a shortlist of potential banks. Then share your current volume and the services you receive from your existing bank with the new banks and solicit a pro forma for the same volume and services.

Once you have a proposal in hand, enlisting an experienced partner can help you make the best decision. A consultant with extensive knowledge of the banking industry can review the pro forma and discuss it with you to determine whether the new service charge offering is acceptable. You may also be able to leverage a new bank’s proposal to seek lower rates from your existing bank. Look for a partner who has the skills and expertise to negotiate with the proposed bank (or your current bank) on your behalf.

Reduce Rates and Optimize Yield

The Federal Reserve raised interest rates by 0.25% in March, and Fed chairman Jerome Powell has indicated that continued rate hikes are likely throughout 2023. Rising interest rates, bank fees, and costs of capital pose new challenges when it comes to yield preservation. Minimizing your banking fees is essential to cover these and other rising costs; however, reducing fees is often easier said than done.

Periodically reviewing your banking fees is best practice, but it’s also time-consuming and confusing. There are more than 3,100 (AFP Codes) fees banks can charge for business account services, including fees for account maintenance, wire transfers, depository services, withdrawals, ACH, and more. Even if you have the time and resources to scrutinize fees on a regular basis, you likely lack the treasury expertise and comparative/real-time data necessary to negotiate best-in-class pricing on your own.

Working with an experienced partner that can review, negotiate, and lock in rates on your behalf can help you optimize earnings credit rates (ECR) and improve your yield, helping to offset treasury fees. Once fees are reduced to zero, a bank and treasury expert can examine your potential deposits and suggest investment opportunities that can help you earn more interest income, such as money market accounts or sweep accounts.

Safeguard Your Business by Expanding Your Banking Options

It’s possible to reduce risk and save money without bidding farewell to your present banking relationship. If you can obtain the right services at the right price, staying with your existing bank makes financial sense. But your current bank shouldn’t be your only bank. In today’s tumultuous times, ensuring your organization’s financial safety requires having multiple banking solutions at your disposal.

A partner with extensive knowledge of the contemporary banking landscape can help you select reliable providers to diversify your organization’s banking relationships. Experienced consultants who can negotiate with both current and potential banks on your behalf can optimize your treasury fees without downgrading services or jeopardizing your existing banking relationships. By exploring your banking options, vetting potential banks before a crisis strikes, and working with an experienced partner to expand your banking providers, you’ll be well positioned to proactively shift services the next time risk looms.

Book an appointment today with our treasury services optimization team to learn more.