The Four Reasons SVB is a Wake-Up Call to Automate Treasury

CFOs’ worst fears for cash and financing tied directly to Silicon Valley Bank appear to have been alleviated by the U.S. Government’s takeover of the bank. But anyone thinking the crisis is over missed the lesson completely.

The learning opportunities for corporate boards and treasury management are abundant and all are pointing to a strong need to automate treasury:

1. There is a critical need for business continuity in case cash, liquidity and payments are unavailable.
2. CFOs require real-time liquidity planning; end of day visibility is no longer sufficient.
3. Companies must reduce vulnerability to rising interest rates and FX volatility.
4. CFOs need control of bank counterparty exposure limits.

Business Continuity When Cash Is Unavailable

Friday, March 10 began normally for most organizations. But as the news about SVB unfolded, treasurers at several Kyriba client believed that their company’s cash, liquidity and payment channels were in jeopardy and they needed to scramble to find new alternatives to operate that day—and maybe for longer.

They used Kyriba to gain real-time visibility into his cash balances at SVB and in turn initiated instant payment runs to ensure that critical disbursements could be executed, funding their accounts at other banking providers and completing supplier payments without disruption. As one client shared with me, “On-demand visibility into our cash at SVB coupled with the ability to mobilize our cash immediately allowed us to avoid a liquidity disaster”.

This highlights how critical it is for CFOs to have business continuity for the possibility that cash is unavailable. Disaster recovery plans must support finance teams to react instantly by shifting liquidity to other financial institutions and maintaining shadow cash and payment structures at other banks to ensure continuous operation, no matter what scenario occurs.

CFOs Require Real-time Liquidity Planning

As reported in Fortune, $42 billion was withdrawn from SVB on March 10 alone, driven by mobile and digital banking technology. Not only was the phone to blame for the speed of the unprecedented bank run, but social media further accelerated the contagion, adding a new layer of hysteria for panicked account holders.

CFOs without real-time visibility into cash and automated real-time payment capabilities built into their treasury and payments platforms were deer in headlights, unable to catch up to those with on-demand visibility and actionability.

Yet this is not a problem specific to those with SVB exposure. There is no shortage of potential doom and gloom scenarios that CFOs must plan their liquidity around. The challenge for most finance teams, however, is that the data, insight and actionability of their platforms is disaggregated. They have multiple software packages with varying levels of integration—and none with the unifying ability to see, protect and move cash in an instant.

The practice of liquidity planning necessitates surrounding cash forecasts with data—to visualize cash, liquid investments, borrowing availability and the trapped liquidity within the cash conversion cycle for a variety of scenarios. CFOs need to know how many days of survival remain should an SVB or other key banking relationship blow up—as well as the knock-on effects of rising credit spreads, a reduced dollar (which dropped 1.5 cents in 2 days), and downstream impacts of customers who are no longer going to pay you.

The need for real-time liquidity planning is as true for Roku, which reportedly had 25% of its cash at SVB, as it is for any corporate or bank who may be one or two dominos away from a similarly epic failure.

In the aftermath of SVB (and to a lesser degree, First Republic Bank), every cash and liquidity KPI must be produced in real time in order to reassure the board and shareholders. CFOs need to forecast cash and liquidity with multiple scenarios to give them strategic options should the base scenario not materialize, and one of many unfavorable scenarios is instead right around the corner. And this must be done at machine speed, so that the CEO is always in control of the organization’s cash and able to react to anything, at any time.

Reduce Vulnerability to Rising Rates and FX Volatility

The rise of interest rates in 2022 was the quickest in recorded history in the United States. They caught many CFOs by surprise, apparently including SVB.

Unprepared for a higher interest rate environment – including paying out higher rates than they were earning in return – SVB was highly vulnerable to rising rates, a problem which would have worsened further had the Fed raised rates again the next week.

Further, in light of SVB, talk of rates being temporarily frozen has led to the U.S. dollar giving up a penny and a half to the euro and every other major world currency.

Volatility—interest rates, currency markets and in some cases commodity prices—needs to be mitigated so that corporate earnings are a function of their business and are not unduly influenced by the market rates that continue to shock up and down like an out-of-control roller coaster.

CFOs must understand and quantify the exposures of market rates on their balance sheets, income statements and cash flows. Then at the board level, organizations can decide on the appropriate risk tolerance to ensure that investment, borrowing and hedging policies are working in the best interests of the company’s financial health.

Sadly, those CFOs who are not well supported by their treasury management systems and ERP software have incomplete insight and inconsistent data to make real-time liquidity management and risk management impossible to achieve. CFOs need a liquidity platform that supports their real-time data strategy.

Control of Bank Counterparty Exposure Limits

CFOs who set up real-time control and enforcement of bank counterparty exposure limits saw this meltdown coming—even if only a few days or weeks ahead of others.

An effective bank exposure strategy delivers a cash exposure limit report on demand and in real time so that risk factors such as a bank’s capitalization and the absolute value of the firm’s liquidity exposures can be constantly updated to identify potential issues and notify of limit breaches. As a standard report in your treasury software’s library, exposure limit reporting empowers treasury teams to rebalance cash, investments and borrowing decisions to meet corporate risk directives.

Going forward, boards of directors will now require a much more thorough process to enforce, control, and prove continuous enforcement of these limits and actions. With the right platform and data, CFOs can prove that cash and investments are respecting the board’s counterparty risk compliance and limits.

Implementing What We Have Learned to Automate Treasury

The SVB challenges confirmed the need to automate liquidity planning, risk management and cash forecasting to improve financial resilience—to everything from bank failures to the consequent market volatility. For every CFO that could not offer immediate, real-time answers to the direct and indirect impacts of SVB on their balance sheets, income statements and cash flow, this is a wakeup call to realign your data, platforms and processes to ensure liquidity is actionable for every risk scenario that can possibly occur.

To benchmark your organization’s liquidity resilience against your peers and market leaders, ask us about our treasury, payments and working capital benchmarking. Request a Kyriba value engineering discovery today.