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How CFOs Should Prepare For More Bank Failures | CFO Lounge

How CFOs Should Prepare For More Bank Failures

Mon, Oct 6, 2008

Down to Business

CFOs and Treasurers should be getting sweaty palms at the thought that what happened to WAMU or Indy Mac could happen to them. Let’s say you wake up one morning to find that your commercial bank is headlined in the news as a possible casualty in this financinal crisis. What now? Definitely, don’t sit on your tuchus!

First thoughts that come to mind should be “oh crap” I pay payroll out of this account as well as maintain working capital to support company operations. Not being able to fund cash outflows to either would be disastrous and highly embarrassing. You might even get fired.

I would quickly do the following in this event:

  1. Set up another checking account immediately with a separate unrelated bank…hopefully one that has steered clear of the current credit crisis. Bankrate has a great tool you can use to check on a bank’s safety and rating. If you are bound by SOX, make sure to follow your banking policies and get more than enough signatures to CYA.
  2. Once the account is established, wire money as quickly as possible to the new account from your institutional investment accounts.
  3. Make sure to get a stack of checks from the new bank because odds are all your check stock has routing information from the bank in peril. If you’re smart, you use blank check stock and the ABA and account information can be updated in your ERP in a matter of seconds.
  4. Set up a wire to move all but the FDIC insured amount ($100K) from the troubled bank to the new bank.
  5. Call or email customers and give them the updated routing information.

What I’m telling you, obviously, isn’t rocket science. But in a panic you might forget the basics. If you set up an additional “safety” account now you’ll be much better prepared than most. Don’t be caught with your pants down around your ankles like these nice folks from A Wonderful Life!

This post was written by:

Chad Cohen - who has written 51 posts on CFO Lounge.

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3 Comments For This Post

  1. Garry Says:

    it’s all simple unless you have multinational and have operations around the globe. A very few banks capable of offering services on that scale are in toilet. And I hear service at national bank of Bagadesh sucks.

  2. Allan Says:

    I had an account at WaMu - the switch to JP Morgan was surprisingly smooth and painless. I can’t imagine what a huge logistical and technological nightmare that switch was for the IT departments, but I haven’t been affected at the least. I’m not saying that other individuals and other CFOs will experience the same kind of smooth transition that I experienced. I would definitely take some of the precautions you suggested.

  3. Chad Cohen Says:

    Good point about the WAMU transition to JP Morgan. I just get worried about assets being frozen and needing to pay employees (more than vendors).

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