How Many Banks do Commercial organisations need?
Updated: Aug 5, 2022
When one peruses the literature regarding optimal number of banks per organisation, there does not appear to be too much empirical research to support or backup the anecdotal evidence that we piece together through our daily interactions with organisations.
That has left us curious as to what is the general practise in the market and by extension, what is the optimal scenario for each organisation.
It is common sense in business for every business to ensuring security and continuity of supply chain and in numerous cases this often means not have concentration risk to a supplier where possible.
Based on our experience across the commercial world, this truism does not translate or get implemented for banking partners. In many commercial organisations, they only have 1 banking partners. Reasons often cited include having long standing relationships through good and bad or the fact that the process of setting up new bank accounts is too hard.
Many company treasury policies include a concentration risk section, and based on some high-level analysis, the trend seems to indicate approximately 30% exposure per counterparty. Ergo, approximately 3 banks per organisation.
We have seen that in many city councils they have between 15-25 banks that do price discovery with. They are after all acting in the best interest of rate payers and the community.!
How do you fare and what do you think is the best outcome for your organisation?
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How Many Banks is optimal ?