As of the end of 2024, S&P 500 members held 31% of their current assets in cash. According to data from JP Morgan Asset Management, technology and real estate companies earn about 46% of their current assets in cash.
A portion of the excess cash from large companies is held in FDIC insurance bank accounts, but a significant portion is not the case. FDIC is guaranteed up to $250,000 per depositor per financial institution. Therefore, companies with tens of millions of cash on their balance sheets must either invest liquidity in securities, money market funds or engage in complex financial operations by spreading cash to multiple banks.
Ampersand CEO Kelly Brown helps businesses do just that. But in the lessons on the decline of Silicon Valley Bank's collapse, she believes that some CFOs and financers are keeping their eyes on the ball.
From a protection and revenue perspective, “No one is thinking about cash. Cash is a forgotten asset,” Brown says.
Only four banks broke down in 2024 and 2025. But in one of them, Lindsay, Oklahoma, in October 2024, the first national bank in Lindsay, Oklahoma, some customers with uninsured deposits received just 50 cents for a dollar.
FDIC sold approximately 20% of Lindsay's assets and all of its insured deposits (approximately $90 million) to First Bank and Trust. However, there was about $7.1 million in uninsured money held in the account, exceeding the $250,000 coverage from FDIC insurance. These depositors will only collect the funds if there are other assets of Lindsay National Bank that FDIC can sell to make it the whole depositor.
Lindsay's depositors' experience suggests that banking regulators and the federal government could hold more difficult boundaries about US failure. In other words, as happened with SVB, we cannot guarantee the government that bank deposits exceeding the $250,000 limit have failed.
Bank imbalance
The issue regarding the protection of bank deposits begins with an imbalance in the relationship between a company and its banks. If a company borrows from a bank, the bank usually requires a personal guarantee. Banks could place liens on some or all of the company's assets, Brown says. It also probably requires a complete relationship with the business. This includes fee-based services such as business accounts and wire transfers.
“Banks don't try to lend you money that you don't think will be able to regain assets that you can sell if something goes bad, or at least recover,” Brown says.
Banks rarely say “These are the ways to protect your deposits.”
But it's rare for banks to say, “These are the ways to protect your deposits,” says Brown.
Why do businesses take risks? “I always hear people say, “My bank has been around 100 years or 'I know the president of my local bank,” Brown says. “It's all great, but 100 years ago, the world was different. The regulatory environment was different. The same people don't run the bank.”
Protection measures
Public depositors, such as school districts and municipalities, can obtain letters of credit from the Federal Mortgage Bank to protect their deposits in the event of default.
Banks can also pledge collateral as security for deposits. “If you have a billion dollars sitting in a bank and a bank has securities from the Treasury or federal agency in its investment portfolio, the bank can pledge those securities against the deposit,” says Brown. If a bank fails, the securities go to the depositor. ”
Brown says he arranged many of these transactions. “It costs the bank to do that, but losing a depositor can be even more expensive.”
Buyback (“Repo”) Contracts – Every night, funds are pushed out of the bank's balance sheet into the repo account. The customer is essentially buying a share of the bank's securities. Customers then routinely “sell” securities to banks. This is said to be a “buyback” by the bank.
If the bank offers such services to clients, the warning warns Brown, “They want to make them all in one place to the client.” If the cost of 50 basis points is required to implement a buyback agreement, they will reduce the interest rates the business receives by 50 basis points, she says. Clients often need to sacrifice fees for safety.
“If you go to JP Morgan Chase, a great bank, you rely on a balance sheet to protect you. This is fine. If something happens to JP Morgan, I think there will be a bigger problem in this country.”
However, SVB depositors who gathered to chase after that bank collapse not only lost their more personal relationship with the bank, they also “earned one or two base points in cash from the big fees and interest income for their business.
In Brown's opinion, “There should be no need to sacrifice one for the other. You should get great fees and protect your deposits.”
Earn interest
Despite inflation and high Fed funding rates, many companies still make little money from excessive cash deposits. For example, traditional business savings accounts may offer interest rates of up to 1%.
Corporate customers and their CFOs need to pay attention. “In my experience, commercial customers rarely review them. [deposit] It's consistently charged,” Brown said.
Instead of paying interest on your deposit balance, the bank may offer business revenue credits to maintain cash in non-profit accounts. These credits offset or reduce the fees the business is paying for other banking services. But small businesses often don't want to deal with the hassle of tracking revenue credits, Brown says.
“Banks love having revenue credits because they can lower their revenue credit rates before communicating them to their customers.
Most business customers simply want the best and lowest rates available from the bank. “They don't want to be a nickel and dime,” Brown says.
Brown recommends negotiating whenever possible to get the best rates the bank can offer. If businesses stock up on cash as a buffer against uncertainty, they still need that cash to work for them, she says.
I'm hungry for deposits
In the past five years, Fintech investment accounts such as Acorns and Robinhood have seen a deposit inflow of approximately $2.15 trillion from the megabanks, regional banks and community banks, according to Cornerstone Advisors.
After the collapse of SVB in 2023, many Silicon Valley startups chased their deposits, but some assigned some of the SVB deposits to fintechs like Mercury and Brex. '
Competition with Fintechs is the banks on the small edge of scale that are hungry for core deposits. Despite the bank's need to raise deposit rates over the past three years, customer deposits still represent the bank's attractive, low-cost financing. The FDIC Insurance Bank's net interest margin (the difference in rates acquired on loans paid on deposits) was 3.25% for the first quarter, equal to the Governor's average.
“If you were a local community bank 10 or 15 years ago, your competitors were in your backyard. Today, your competitors are Wealthfront, Robin Hood, Apple Chime – all FinTech and Nonbanks,” says Brown.
These deposit products are packaged in attractive apps, but CFOs and finance personnel need to be clear whether the deposit is protected by FDIC insurance. In most cases, FDIC insurance does not cover FinTech's deposit accounts, even if the bank partners with FinTech to become the backend of its services. (Some fintechs use sweep networks to provide FDIC insurance coverage.)
Furthermore, Fintechs often have the same problems as major banks. There is a lack of customer care. “Even with all technology, it remains the same in banking,” Brown says. [business] Customers want a relationship. They want to be able to call someone when something goes wrong or when there is a need. They want that relationship they can rely on. ”
