Earlier this week, at the Association for Financial Professionals' (AFP) Annual Conference in Miami, attendees were surveyed on a number of questions. Below, we excerpt from the "2012 AFP Annual Conference Onsite Survey Results" and from the organization's earlier annual AFP Liquidity Survey. The release on the survey says, "The Association for Financial Professionals surveyed attendees to the AFP Annual Conference in Miami on October 15, 2012 with the goal of gathering financial professionals' views on the political and economic environment and the potential impact on treasury and finance operations within their organization. The survey generated 949 responses." (Crane Data was among the many attendees and exhibitors in Miami earlier this week.)
The spot survey's Question 1. was: Per the 2012 AFP Liquidity Survey, 51 percent of organizations' short-term investment balances are held in bank deposits. With the pending expiration of unlimited FDIC insurance on non-interest bearing transaction accounts at the end of the year, do you anticipate that the percentage of corporate balances held in bank accounts will be higher, lower or the same six months from today?" The responses were: 3% Higher, 48% No significant change, and 49% Lower."
The 2012 AFP Liquidity Survey, which was published in late June, says on the topic of bank cash, "Most tellingly, financial professionals report their organizations are currently keeping over half of their short-term investment portfolios in bank deposits. Fifty-one percent of short-term investment balances are maintained in bank deposits, an increase of nine percentage points from the 42 percent reported in 2011 and the highest share reported in the seven-year history of the AFP Liquidity Survey. The increase in bank deposits as a percentage of short-term investment portfolios occurs even as organizations, on average, use as many investment vehicles as they have in recent years. Organizations still invest in an average of 2.4 vehicles for their cash and short-term investment balances, a mean value that has not changed from the 2010 and 2011 surveys. Overall, many organizations continue to allocate most of their short-term investment balances -- an average of 74 percent -- in three safe and liquid investment vehicles: bank deposits, MMFs and Treasury securities."
AFP's survey explains, "As treasury departments focus on managing counterparty risk, they should be cognizant of the transfer from one risk-free asset class to another (e.g., the shift from Treasuries to FDIC-insured non-interest bearing bank accounts). At the end of the day, the U.S. Government is the backstop for both programs and, with a balance of around $2.7 trillion in unlimited insurance and a depository insurance fund balance of approximately $15 billion, there is a perceived moral hazard in extending unlimited FDIC insurance. At the time of publication of this report, there appears to be little appetite to extend the FDIC program beyond its scheduled expiration date at the end of 2012. Of course, that mood could shift before that date."
AFP's original Liquidity Survey adds, "A majority of financial professionals do not expect significant changes to their organizations' strategies for short-term investments in bank accounts when (if) unlimited FDIC insurance is phased out at the end of 2012. However, two in five respondents do indicate their organizations may diversify their holdings by reducing short-term investment in non-interest bearing accounts. This figure rises to nearly half of net investor and publicly owned companies, representing significant potential withdrawals from banks. The most likely destination for the cash held in non-interest bearing bank accounts would be prime MMFs, Treasury-based MMFs, Treasury securities and/or agency bonds. None of these vehicles emerge as the preferred investment choice across organizational demographics."
Finally, a table entitled, "Possible Destinations of Investments Currently Held in Bank Deposits in Reaction to Scheduled End of Corporate Access to Unlimited FDIC Insurance at the End of 2012 shows: 59% answering "No significant reduction in short-term investments currently held in non-interest bearing bank accounts"; 17% responding "Prime MMFs <b:>`_; 16% saying "Treasury-based MMFs"; 14% answering "Treasury securities and/or agency bonds"; 6% Repos; and 8% "Other".
In other news, Fitch published a brief entitled, "Room for Improvement in Repo Disclosure Practices," which says, "Expanded disclosure requirements for money market funds (MMFs), set forth by the Securities and Exchange Commission (SEC) in 2010, have facilitated the task of evaluating money funds' holdings and, more broadly, provide an unparalleled data source for evaluating the risk attributes of an important segment of the tri-party repo market. The granularity of these disclosures enabled Fitch Ratings' recent research on repo collateral, which was based on the repo activity of the 10 largest U.S. prime money market funds."
They comment, "Still, Fitch sees some areas of potential improvement in current MMF reporting practices that should be addressed if high-quality data from funds is to be analyzed effectively by regulators, market participants, and third-party researchers. Under SEC Rule 30b1-7, approved in February 2010, money funds are required to submit detailed information on security holdings to the SEC on a monthly basis. The data is disclosed publicly with a 60-day lag. This information, detailed on SEC Form N-MFP, provides thorough disclosure of MMF asset composition and risk profiles and represents the most granular, publicly available data source on tri-party repo transaction attributes (e.g. counterparty, yield, maturity) as well as security level details for the underlying repo collateral (e.g. issuer, valuation). Yet, repo collateral disclosure practices could be materially improved."
