Banks in Trouble: How Businesses Can Navigate New Volatility

Banks in Trouble: How Businesses Can Navigate New Volatility
March 22, 2021 11 mins

Banks in Trouble: How Businesses Can Navigate New Volatility

Banks in Trouble: How Businesses Can Navigate New Volatility Hero Banner

Companies and solvent banks are looking for ways to protect their assets amid financial volatility. Failing banks and their clients will need to act fast to meet employee needs and maintain capital.

Key Takeaways
  1. Sufficient coverage, legal strategy and consulting can help in the event of bank failures.
  2. Diversifying a company’s approach to capital can create new opportunities for managing risk.
  3. Employers may face unique human capital challenges when a bank struggles or fails.

Overview

Recent banking industry turmoil has proven costly for financial institutions and governments, and triggered uncertainty among business leaders, investors and other stakeholders. In the U.S. the Federal Reserve and several leading banks have stepped in to shore up a number of struggling lenders. Meanwhile, in Europe, a global bank has bought a troubled rival to help calm a crisis of confidence. As the situation develops, banks, shareholders, depositors and other stakeholders face a volatile financial landscape. But taking a strategic view of today’s banking crises could help them respond to a range of challenges and mitigate issues.

In Depth

This month’s banking woes have put the financial sector on high alert. Banking clients are closely examining their assets and liabilities, and companies are reviewing the risk profiles of the banks with which they do business. Meanwhile, banks that are not directly affected are looking ahead to see how they can prepare themselves for tough times.

In response to today’s banking failures, companies are seeking to manage risk, minimize liabilities and maintain liquidity. These steps include taking a proactive stance on insurance coverage and scoping new sources of capital in addition to planning for employee needs in the event of a bank collapse. Banking failures may also prompt litigation from shareholders, adding costs and complications for banks in distress.

Reinforcing Protection

Bank failures expose a bank and its clients to a host of potential vulnerabilities. Deposits over a certain threshold may not be federally insured, and today’s banking troubles are increasing interest in extra levels of FDIC protection. Bank collapses could also undermine asset values in capital markets, and bank clients may seek alternative capital to bolster asset values.

Bank directors and officers may face lawsuits from shareholders in the event of a collapse, and depositors may take legal actions against banks as well. Solvent banks can prepare for this possibility by stress testing their financial lines insurance policies for failure and regulatory investigation scenarios to ensure they perform for the benefit of a variety of stakeholders as intended.

Bank failures can also leave account holders exposed to cyber risk, as cyber criminals may seek to take advantage of the uncertainty that accompanies a bank’s collapse. These cyber crimes could include phishing, impersonation or direct hacking of accounts. Having cyber insurance and a clear plan of action in the event of a cyber attack could help banks mitigate risk in these circumstances.

Quote icon

Volatility in the banking sector and its unpredictable secondary impacts should prompt risk managers to stress test their insurance policies, diversify their funding sources and war game their human capital and M&A strategies

Joel Sulkes
Global Financial Institutions Practice Leader, Aon
Strategies for Capital

When a bank fails, its clients may need to turn to alternate sources of capital to maintain operations. A company’s intellectual property (IP) is a valuable asset, and by accurately valuing and appropriately insuring its IP, a business could make itself more appealing to lenders in a time of need. Disruptions in the banking industry may also generate cascading and unpredictable credit deterioration across a number of sectors necessitating a broad range of solutions for managing credit risk including through the (re)insurance markets.

Bank clients may also look to mergers and acquisitions to weather the disruptions caused by the bank’s collapse. These clients will need to look to external sources for M&A financing, with an upheaval in the banking industry creating space for private equity or venture capital firms to act as lenders. Companies seeking to be acquired will need to prove their value (including IP), level of insurance coverage, cyber health, and people strategy to be attractive to potential buyers.

Employee Considerations

In the wake of a financial crisis, workforce resilience is a critical strategic consideration. As a bank prepares to cease operations, it must identify which staff will need to be retained throughout phases of closing and determine how they will incentivize retention. Closing actions may also include clawbacks for executives, and keeping an eye on cash conservation throughout shutdown is essential.

A bank collapse may affect its customers’ workforces as well. Should the bank a company uses fail, there are several personnel and operational considerations a company must address. Companies that work with a bank in crisis will need to take immediate action to pay their own employees and service providers. This requires an alternate source of capital and potentially asking the employers they serve to make special accommodations until a relationship with a new bank has been established.

General Disclaimer

The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Terms of Use

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.

Aon's Better Being Podcast

Our Better Being podcast series, hosted by Aon Chief Wellbeing Officer Rachel Fellowes, explores wellbeing strategies and resilience. This season we cover human sustainability, kindness in the workplace, how to measure wellbeing, managing grief and more.

Aon Insights Series UK

Expert Views on Today's Risk Capital and Human Capital Issues

Construction and Infrastructure

The construction industry is under pressure from interconnected risks and notable macroeconomic developments. Learn how your organization can benefit from construction insurance and risk management.

Cyber Labs

Stay in the loop on today's most pressing cyber security matters.

Cyber Resilience

Our Cyber Resilience collection gives you access to Aon’s latest insights on the evolving landscape of cyber threats and risk mitigation measures. Reach out to our experts to discuss how to make the right decisions to strengthen your organization’s cyber resilience.

Employee Wellbeing

Our Employee Wellbeing collection gives you access to the latest insights from Aon's human capital team. You can also reach out to the team at any time for assistance with your employee wellbeing needs.

Environmental, Social and Governance Insights

Explore Aon's latest environmental social and governance (ESG) insights.

Q4 2023 Global Insurance Market Insights

Our Global Insurance Market Insights highlight insurance market trends across pricing, capacity, underwriting, limits, deductibles and coverages.

Regional Results

How do the top risks on business leaders’ minds differ by region and how can these risks be mitigated? Explore the regional results to learn more.

Human Capital Analytics

Our Human Capital Analytics collection gives you access to the latest insights from Aon's human capital team. Contact us to learn how Aon’s analytics capabilities helps organizations make better workforce decisions.

Insights for HR

Explore our hand-picked insights for human resources professionals.

Workforce

Our Workforce Collection provides access to the latest insights from Aon’s Human Capital team on topics ranging from health and benefits, retirement and talent practices. You can reach out to our team at any time to learn how we can help address emerging workforce challenges.

Mergers and Acquisitions

Our Mergers and Acquisitions (M&A) collection gives you access to the latest insights from Aon's thought leaders to help dealmakers make better decisions. Explore our latest insights and reach out to the team at any time for assistance with transaction challenges and opportunities.

Navigating Volatility

How do businesses navigate their way through new forms of volatility and make decisions that protect and grow their organizations?

Parametric Insurance

Our Parametric Insurance Collection provides ways your organization can benefit from this simple, straightforward and fast-paying risk transfer solution. Reach out to learn how we can help you make better decisions to manage your catastrophe exposures and near-term volatility.

Pay Transparency and Equity

Our Pay Transparency and Equity collection gives you access to the latest insights from Aon's human capital team on topics ranging from pay equity to diversity, equity and inclusion. Contact us to learn how we can help your organization address these issues.

Property Risk Management

Forecasters are predicting an extremely active 2024 Atlantic hurricane season. Take measures to build resilience to mitigate risk for hurricane-prone properties.

Technology

Our Technology Collection provides access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities of technology. Reach out to the team to learn how we can help you use technology to make better decisions for the future.

Top 10 Global Risks

Trade, technology, weather and workforce stability are the central forces in today’s risk landscape.

Trade

Our Trade Collection gives you access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities for international business. Reach out to our team to understand how to make better decisions around macro trends and why they matter to businesses.

Weather

With a changing climate, organizations in all sectors will need to protect their people and physical assets, reduce their carbon footprint, and invest in new solutions to thrive. Our Weather Collection provides you with critical insights to be prepared.

Workforce Resilience

Our Workforce Resilience collection gives you access to the latest insights from Aon's Human Capital team. You can reach out to the team at any time for questions about how we can assess gaps and help build a more resilience workforce.

More Like This

View All
  • Better Decisions Brief: Responding to the CrowdStrike IT Outage

    Alert 3 mins

    Better Decisions Brief: Responding to the CrowdStrike IT Outage

    While the impact of today’s CrowdStrike outage is yet to be fully understood, it serves as an opportunity for C-suite and other business decision-makers to think through technology dependencies and the steps necessary to respond to this outage – as well as to mitigate related risks in future.

  • Insurance and the Metaverse: Safeguarding Virtual Assets

    Article 8 mins

    Insurance and the Metaverse: Safeguarding Virtual Assets

    Insurers are venturing into the thriving digital landscape of the Metaverse, covering virtual assets, safeguarding intellectual property, and protecting the wellbeing of users and avatars. With this evolution, comes new challenges and the unique opportunity to shape the future of insurance.

View All
Subscribe CTA Banner