Businesses are expecting to unload even more cash into banks, according to a liquidity survey released Tuesday.
The Association of Financial Professionals is predicting at least two-thirds of multinational companies based in the United States could park their cash in "safe" investments like bank deposit accounts, pending regulatory proposals on mutual funds.
Already, more than half of the cash holdings at multinationals are being held in banks deposit accounts, the AFP said in a liquidity survey released Tuesday. That's more than double the 23% tracked in 2006 and the highest average in seven years, the survey said.
The AFP is predicting that these companies could redirect even more cash to banks accounts if heightened requirements "hinted" by the Securities and Exchange Commission on money market funds take place. Increased regulatory and accounting requirements could cause the Treasury executives at multinationals to pull out or curtail investments in mutual funds, AFP said.
Regardless of pending regulation, more than 80% of finance executives surveyed said they expected their cash flows to remain the same or increase in the next year. Among the 391 respondents, 61% reported higher liquidity than a year earlier, largely because of increased operating cash flows or accessing the debt markets.
Companies are also more concerned about safety than yield, the AFP said. Nearly three-quarters of corporate cash balances are held in bank deposits, money market funds and Treasurys. Companies have also found limited vehicles to stash their cash following the financial crisis and heightened regulation. All indicators should translate into higher deposits at banks.
"In these uncertain times, it is clear that protecting principal is the main concern for corporate treasurers," Jim Kaitz, AFP's president and chief executive, said in the release. "This is creating a virtuous/vicious cycle of increasing cash balances and also flows into banks."
