Three quarters of small businesses in the UK are considering spreading their deposits among a range of different banks following March’s banking crisis.
According to new research from payments provider Neo, 75 per cent of UK SMEs are considering diversifying their bank pool while six per cent already have. Neo surveyed 100 CFOs and treasurers at UK-based SMEs.
Businesses are increasingly aware of the need to spreading their deposits among a number of banks following the collapse of Silicon Valley Bank (SVB) in March this year.
SVB was felled by the largest bank run in history, leaving many firms at risk of losing access to their funds.
Many of the depositors at SVB, both in the UK and US, were tech companies whose deposits exceeded the insurance limit, leaving them at risk of losing everything. Tech executives warned that if SVB UK were allowed to collapse that it would be an “existential crisis” for the tech ecosystem.
In the event HSBC acquired SVB UK for £1. Had SVB not been taken over by HSBC, its insured depositors would still have faced a 10-day wait to receive their funds.
Laurent Descout, chief executive and co-founder of Neo said: “This crisis has shown that banks can fail and that to manage risk, treasury teams must diversify their deposit funds and have a better understanding of their bank’s investment policies.
“A bank failure can cause serious short-term liquidity issues which can affect vital expenditures such as payroll and supplier invoices, even if it’s only for a few days. Increasingly, relying on one financial institution to deposit funds is becoming an increasingly risky strategy,” Descout continued.
Following the collapse of SVB, the Bank of England is considering proposals to update its deposit protection scheme.
Regulators worry the current £85,000 threshold for deposit insurance is too low and the lack of pre-funding for the FSCS means there are delays for customers to regain access to their cash.