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I'm going to use this text, posted in last week's thread, as a jumping off point to make a little effortpost on a boring area that's actually kind of important, and where I know a little bit: treasury management!
This will only happen if your CFO is incompetent and doesn't do treasury management.
Treasury management - the most basic practice of any corporate finance department - is the practice of managing corporate cash in order to earn interest on what isn't being used , ensure that whatever cash is needed by the business is available, and also minimize tail risks like your bank going belly up.
Step 1 is observing that you can get 4.5% on 4 week treasuries. These are, regardless of amount, backed by full faith and credit of US Gov.
Now suppose you are a business with $500k of biweekly expenses ($500k due on Mar 15, $500k due on Mar 31). You have $20M in venture capital remaining which gives you about 1 year 8 months of runway.
All of that - minus $500k or so needed for short term investments - goes into 4-8 week treasuries which you reinvest whenever they mature. This earns 4.5% or about $900k/year in essentially free money. Money sitting in government bonds with duration < 90 days is called cash equivalent by corporate finance people.
Your not incompetent CFO just extended your runway to 1 year 9 months.
Step 2: ensure that the maturity dates of these cash equivalents line up to your payroll dates. $500k cash is due on Mar 15 for payroll/etc. Fortunately, $500k worth of your 4 week treasuries got turned into cash on Mar 9 (typically the maturity date is thurs).
Another $500k cash is due on Mar 31. You have another $500k worth of 4 week treasuries maturing into your bank account on Mar 30 (a thurs) or maybe Mar 23 (also a thurs) if you really want to be safe.
Step 3: line up a short term credit facility.
Some expenses are less predictable. Part of the job of CFO is to project these expenses, come up with upper bounds, and inform the CEO what it will cost if these bounds are exceeded. Then the CFO goes to a few banks and lines up credit facilities - a $2-3M line of short term credit backed by cash equivalents from step 2.
Step 4: have a few bank accounts including one at a "too big to fail".
That's treasury management, obviously oversimplified.
Now suppose your CFO actually did his job. It's Mar 13 and SVB just imploded. You had $500k sitting in SVB for Mar 15 payroll and that's locked up. Here's what you do:
Mar 11: Quickly call up your credit facility and tell them to wire $500k to your payroll provider on Mon. Call your payroll provider and tell them to confirm with the bank that this is happening to avoid any snafus.
Mar 13-14: As soon as SVB allows it, wire the $250k FDIC insured money to your credit facility. Also redirect treasury maturity payments to said account, and take another $250-270k of cash equivalent and don't reinvest them.
Mar 16 or Mar 23 (a thursday when your maturity payment gets deposited): get $270k worth of 4 week treasury maturity payments from the US govt. Wire this money back to your credit facility.
Net result is that you make payroll with no interruption. You just lost $250k to SVB's errors and paid your credit facility $20k in interest. The end.
So I’m starting to just assume there’s zero reason for regional banks to exists. They don’t have proprietary advantages like the big banks. GS with complexity/cap markets, C with scale ability to do transactions anywhere etc.
I don’t see any reason for a person to keep deposits in no edge regional banks. They pay you barely anything. Seems like on the lending side they don’t have any market advantage to generate enough yield. Business models seem dependent on 0% deposits which no one should own.
Depending on deposits just seems like a bad business model to me going forward. And 0% deposits allowing you to make bad financial decisions.
As a small business owner I couldn't imagine trying to deal with a bank like Citi or BoA. The general rule of thumb is that you want a bank big enough to offer the kind of products you need but no bigger. I use a regional (though I could probably use a small local) and if I have a problem I can call the girl who handles my account from the number in my Rolodex and usually get an in-person meeting scheduled for the same day. IF I'm dealing with some huge national I'm stuck calling a customer service line where I spend half the afternoon on hold and the other half trying to explain my problem to someone who has limited power to solve it and whose evaluations are based on how quickly they can get me to hang up.
Judging by how we prioritized fixing post-cutover bugs at the bank I worked for, the best bank is the one where your CFO can call their CEO at 6am (time zones!) and start the conversation with "What the flying fuck?"
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