The recent failures of Silicon Valley Bank and Signature Bank have focused attention on an often-overlooked issue: bank counterparty risk.
From a treasurer’s perspective, banks are much more than account-holding institutions. They provide an array of critical payment and collection services, and the impact of losing access to these services cannot be overstated. The Federal Reserve’s decision to intervene in the recent bank failures to give depositors full access to their funds provides some relief but does not fully address the problem of interruptions in the provision of services. These bank failures serve as a reminder of the importance of properly measuring counterparty risk and ensuring that business continuity plans include scenarios in which a banking partner is no longer able to provide key treasury services.