Aon is monitoring events closely and has consolidated perspectives from across its business to share insights on how Aon can support clients in the event of a bank failure.
Our insights gathered through sophisticated data and analytics will be critical to help leaders make better decisions about investing capital across risk management, growth initiatives and workforce resilience.
Five Executive Learnings
- Proactively design and stress test relevant insurance programs to make sure they will perform for all contemplated stakeholders as expected in bank failure claim scenarios
- Workforce resilience is operational resilience, especially in stressed environments
- Diversification of funding and liquidity sources is paramount as is a suitable asset and liability management (ALM) programme
- Intellectual property can be valued and can thus unlock new sources of liquidity and funding
- Being able to quickly activate a broad, comprehensive due diligence undertaking across various risk and human capital domains combined with the potential to structure innovative insurance solutions pertaining to specific deal situations will unlock value opportunities when presented
Initial Considerations for Banks and Corporates Following Recent Events
Excess FDIC (Federal Deposit Insurance Corporation) Protection – Clients impacted by bank insolvencies may find themselves affected by limits on deposit protection offered by the Federal Deposit Insurance Corporation. This was a significant concern for depositors at the recently affected banks and has increased interest in Excess FDIC Insurance among bank clients. Coverage is purchased by banks at the request of their customers, with the policy providing deposit protection above the limits of the FDIC and typically offers payment within five days of a bank failure.
Directors and Officers Liability (D&O) – Following bank failure, there is the potential for shareholder litigation brought against affected banks and its directors and officers (D&Os). Litigation can include securities class actions for alleged misstatements and omissions, as well as derivative suits against bank D&Os for alleged breaches of fiduciary duties arising out of inadequate internal controls and risk management.
Other potential targets for shareholder claims include counterparties (including, but not limited to, private equity, sponsor firms and portfolio companies) and their respective D&Os, to the extent that such companies’ liquidity, funding, valuations, or business operations were impacted by the bank’s collapse. D&Os may also be targets for regulators, which might launch investigations into potential malfeasance. It is also conceivable that regulators may introduce or re-introduce requirements that create even more exposures for banks and their D&Os, such as stress tests or other capital requirements.
Fidelity Bond or Crime Insurance – Although there have not been allegations criminal wrongdoing following the recent bank failures, many banks should have insurance coverage against employee malfeasance. Fidelity Bond or Crime Insurance – if triggered – would become an asset of the estate, supplementing funds available to depositors and creditors.
Bankers Professional Liability – In the event of an insolvency, depositors may find themselves facing difficulties such as paying payroll and third parties and in turn seek redress from the failed bank through the courts. Circumstances would likely trigger a Bankers Professional Liability policy - where it is in place. Such a policy is designed to provide coverage to banks facing customer litigation where they have failed to perform their obligations.
How Aon Can Help: Aon’s Commercial Risk business works with banks of all sizes to ensure they have appropriately designed insurance programs structured to protect relevant stakeholders and to perform as expected in claim scenarios.
Cyber Insurance – Cyber criminals will attempt to capitalize on any banking collapse by launching targeted social engineering attacks. Some of these attacks could claim to offer assistance or information about the collapse and contain malicious links to fraudulent websites that ask for personal information such as passwords, social security numbers, and credit card and bank account details. The context of the insolvency makes such attacks more convincing and harder to detect.
Those who should be concerned include companies with affected accounts, B2B companies whose customers and/or vendors have accounts with the affected bank/s and other financial institutions. Cybercriminals will try to change the account details of any known clients/customers and vendors before the company does, maybe even implementing stronger controls to make it more difficult for legitimate changes. Cyber criminals could also request rush payment or rerouting of recent payments, and firms will need to set clear guidelines and processes for employees to avoid likely attacks.
How Aon Can Help: Aon’s Cyber Solutions offer a range of services that help clients to assess, mitigate, and transfer cyber risks and quickly recover from incidents.
Capital Markets – A bank failure, like any shock to the economy, will put downward pressure on asset values.
How Aon Can Help: In addition to delivering risk management and transfer solutions from the (re)insurance markets, Aon’s Capital Markets team can also bring alternative, institutional capital seeking diversification to bear to maximize asset sale valuations.
Investment Consulting – The events in the US have highlighted the need for prudent and focused risk management by corporations of how cash and working capital assets are managed relative to the short-term liabilities they support within the organization. It is important to evaluate the investment strategy, diversification, and maturity profile of the assets to ensure that they meet the needs of the organization, while maximizing return generation and managing the risks.
How Aon Can Help: Aon’s Wealth business can undertake a holistic review of how cash and working capital assets are managed versus the corporation’s operating and liquidity requirements, leading to better asset-liability risk management and investment strategy.