The list of concerns keeping business owners awake at night is shockingly long. Until recently, systemic financial failures weren’t top of mind for most. But bank runs have reemerged a legitimate threat, and that's created a cash management reckoning of sorts.
While the Federal Reserve has recently demonstrated a willingness to protect depositors beyond standard FDIC limits, these measures have been ad hoc. There’s no guarantee a company’s bank-held cash is safe beyond the $250,000 deposit insurance limit.
But that's no reason to panic. Middle market businesses can reduce institutional risk and safeguard short-term operations with some straightforward measures.
Build Banking Redundancies
It’s important for companies to have a trusted financial partner. Relationships matter and service bundles can drive operational efficiencies. Nonetheless, a one-stop-only approach represents a concentration risk. Even a brief banking disruption can compromise a business’s core operations.
A modest association with a secondary financial institution may offer a critical lifeline. Just two weeks of operating cash flow in a contingency checking account can help a company make payroll and pay essential vendors in the event their primary bank stumbles. More complex businesses may benefit extra redundances, but it's much easier to add bank accounts and services once a basic relationship is in place.
Consider ICS or Similar Services
Insured Cash Sweep (ICS) is a lesser-known service that's available across IntraFi's network of 3,000 community, regional, and national banks. Business customers at these institutions can effectively extend FDIC insurance to cover up to $150 million in liquid deposits.
ICS parcels a company's total deposits into one-off accounts at other IntraFi member institutions. No account holds more than $250,000. As a result, all funds are FDIC insured. This service, and others like it, carries a cost, but for many businesses, the added peace of mind is worth it.
Explore Treasury Securities
US Treasury bills, notes, and bonds – as well as associated ETFs – represent a potential refuge for excess cash. These securities are not insured, but Treasuries are backed by the full faith and credit of the United States. When government obligations aren’t met, a bank run is the least of our worries.
Treasury exposure needs to be balanced against short term cash needs and duration risk, so these investments require careful planning. Companies should consult a licensed securities advisor before moving ahead with a more robust treasury management strategy. Please note that CSG does not provide investment advice.
Stay Positive, but Plan Accordingly
Bank failures may feel like a novel concern, but American businesses have navigated similar crises for generations. Need a reminder? Watch “It’s a Wonderful Life.”
Luckily, companies today have more risk mitigation tools at their disposal than their predecessors. So rather than ignore the threat, business owners and executives should take deep breaths, assess their institutional risks, and plan for worst case scenarios. A little work can go a long way towards a more restful night.
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