Our 3/13/23 Note to Heavybit Founders & CEOs - Key Banking / Cash Management Steps to Take This Week

6 min
  • Enroll in ICS
    • ICS (insured cash sweep) is a product of IntraFi which is offered by many banks and breaks up deposits overnight and spreads them around to other banks to maintain FDIC coverage
    • some banks have minimum account balances and/or maximum balance caps for ICS
    • some banks have automatic/included ICS enrollment (though most do not)
    • there are other products under other names that achieve similar coverage; ensure you understand where the money will be held and whether FDIC coverage will be maintained over every dollar
  • Create Cash Sweeps
    • Cash sweep products continuously move funds in excess of the FDIC limit into a money market account (MMA), money market fund (MMF), or other account type which either carries higher insurance limits, or sits with an external custodian (e.g. Morgan Stanley, BlackRock, etc.)—meaning it is not on the bank’s books and can be recovered directly in the event of bank insolvency
    • exact custodianship of MMA/MMD/MMF/sweep products is important
      • most MMAs/MMDs are banking products which are commingled with the bank’s assets and are subject to the $250k FDIC limit
      • generally MMFs are securities held by an external custodian
      • Simple test: if FDIC insurance applies, then it sits on the bank’s balance sheet and does not provide sufficient protection over $250k
      • securities held by an external custodian which is a registered broker-dealer are protected from custodian insolvency by the SEC’s Consumer Protection Rule (CPR) which requires full segregation of your securities from the custodian—they are held directly in your company’s name
      • in selecting MMF type products, the priority is preservation of capital, not returns
  • Hold Treasury Cash in Brokerage Accounts at large institutions and transfer only working capital into business banking accounts on an ongoing basis
    • important to ensure treasury funds are with a custodian subject to SEC’s CPR (see above) and/or are insured and invested in safe products (prioritizing preservation of capital over returns)
    • important to ensure cash management at the bank is configured to avoid/protect large balances