Many people feel stressed and scared as the world grapples with unprecedented challenges. And it’s not just individuals feeling the pressure – businesses, venture capitalists, and private equity firms are also struggling to navigate the uncertain waters, especially surrounding the recent banking crisis. It’s not every day that we see a major bank fail following a $1.8 billion after-tax loss, but that’s precisely what happened to Silicon Valley Bank. The news of Silicon Valley Bank, Signature Bank, and First Republic Bank failing has sent shockwaves through the industry and raised concerns among depositors across the banking sector.

Concerned companies are all asking the same question: How can we keep our cash safe and liquid to pay our bills while protecting ourselves from the volatility of the banking environment?

It’s a question on everyone’s mind for good reason. This much uncertainty makes it natural to feel anxious. But here’s the good news – there are strategies you can employ to keep your cash safe, liquid, and earning competitive rates, even in these challenging times. 

Tips to Keep Your Cash Safe:

• Money market funds from multiple providers: consider investing in funds holding high-quality short-term securities such as U.S. Treasury bills and other government securities. They are managed for the preservation of principal, to ensure liquidity, and to offer yields competitive to bank deposits. 
• Know the difference between direct and omnibus structures and sweep accounts (and why it matters): Many bank customers are unaware that their sweeps and money funds are often held in “omnibus” accounts registered in the bank’s or intermediary’s name. This means that when you instruct your bank to redeem your money, your redemption proceeds can only be sent to your bank account at that particular bank. If your bank account is frozen due to problems with the bank, you can’t get your money.
• Keep an eye on interest rates: as interest rates rise, it’s essential to be agile and adjust your investment strategy accordingly. An automated treasury management solution can help you take advantage of interest rate hikes. 
• Work with a trusted person who has experience in both cash and investment management: who can help you navigate the complex financial landscape and make informed decisions about your money.

You don’t have to navigate these challenging times alone. By taking a proactive approach and seeking expert advice, you can ensure you are prepared to keep your cash safe and liquid and remain well-positioned during volatile times.

Having a Contingency Plan for a Banking Crisis

As the world grows more unpredictable, it’s crucial to have a solid plan in place to weather the next banking crisis or financial catastrophe. And while predicting the future may be impossible, preparing yourself to face any situation head-on is within your control. One fundamental way to do that is by using multiple financial institutions.

• Diversify your cash: by spreading your cash across more than one bank and in more than one money market fund, you can minimize your exposure to any one institution and reduce your risk resulting from an unstable or failed financial institution.
• Simplify processes: managing accounts across multiple financial institutions can be daunting, especially for smaller companies with limited resources. But fear not; software like Treasury Curve can help you stay on top of things and make your treasury management process more efficient. 

By placing your cash and investment across multiple financial institutions, you’re hedging your bets and ensuring you have options no matter what happens. Plus, it gives you the bonus of being able to shop around for the best interest rates and account features.

The Omnibus Account: A Cautionary Tale

The Omnibus account setup prevented investors from accessing billions of dollars they had with Silicon Valley Bank after the banking crisis. This type of account, which pools together the assets of multiple investors, has become increasingly popular in the financial world because it can add some operational efficiencies. But in times of crisis, those operational efficiencies you gained aren’t worth losing access to your money!  

Why Was the Omnibus Account Such a Problem During the Banking Crisis?

For example, when your bank has invested some of your money in a money market fund, the bank typically does so using an omnibus account structure. So when the investor wants to get their money out of that money market fund, the money can only be sent directly to the bank account at that particular bank. When banks are failing, typically, the accounts are frozen. The investor can’t get their money out when that particular bank account is frozen. Some investors then try to contact the money market fund provider directly. But the money market fund providers don’t typically know who the underlying investors are in the omnibus account.

Imagine you’re at a restaurant, and the waiter brings you a giant plate of food that’s been mixed together with everyone else’s orders. It would be impossible to tell what’s yours and what’s not. That’s the kind of confusion that the Omnibus account caused for investors.

The Omnibus account ultimately proved risky and problematic despite the convenience of pooling assets together. In the aftermath of the banking crisis that was Silicon Valley Bank’s collapse, many investors were left scrambling to access their money quickly.

The lesson here? When it comes to investing, simplicity, and transparency are key. 

Necessary Information When Buying Money Funds

When buying money funds, keep two things in mind:

1. Ask your distributor if your account will trade Omnibus or Direct.

• • Omnibus: when you instruct the third-party distributor to redeem your money from the fund provider, your redemption proceeds are first sent to the distributor’s account before they are sent to your bank account.
  • Bank Sweep: when you instruct your bank to redeem your money from the fund provider, your redemption proceeds can only be sent to your bank account at that particular bank.

• • Direct: when you instruct your distributor to redeem your money from the fund provider, the redemption proceeds will be sent directly to your bank account. It’s crucial to limit the amount of stops your money must make before getting to your bank account. When you trade Direct, you also have the ability to instruct your distributor to send redemption proceeds to an alternate destination. That’s very important if there is a problem with your bank!  

2. Buy a money market fund through a supervised financial institution that has experience in both investment and cash management. A supervised financial institution is obligated to comply with regulators and auditors in order to maintain a positive status and ensure its client’s information and financial assets are protected.

Optimize Your Investing, Without Adding Cost or Complexity

Don’t risk depositing all of your money with a single institution. A Money Fund Portal allows you to diversify your deposit risk across multiple institutions without adding unnecessary costs or complexity. It is the ultimate tool for companies researching, trading, reporting, and analyzing their investments across their accounts and currencies. With superior technology, you can take control of your investments like never before.

The Benefits of the Money Fund Portal:

• Research: current holdings and investment options to help you make informed decisions. 
• Trade: the platform allows you to trade funds across investment providers to maximize your returns and minimize risks.
• Report: stay on top of your investments with our comprehensive reporting system. View your holdings, balances, and transaction details on one dashboard.
• Analyze: research, trade, report, and analyze across a whole universe of fund providers. Ensure your investments are compliant.  

Don’t leave your financial future to chance – work with experts who understand the intricacies of the financial markets and can help you make informed decisions that set you up for success. At Treasury Curve, we know that your investments are more than just numbers on a screen. These numbers represent your organization’s money that you are responsible to safekeep and optimize. That’s why we offer a user-friendly platform with personalized support from licensed experts to help you achieve your financial goals. Sign up today and optimize your strategy for both your cash and investments! Book a demo with Treasury Curve today to get started! 

Don’t Fear the Next Banking Crisis | Key Takeaways:

• Money market funds from multiple providers: consider investing in high-quality short-term securities through money market funds. They are managed to provide a safer and more liquid option for your cash and can potentially provide a higher yield than bank deposits. 
• Invest in a Direct account: Limiting the amount of stops your money must make before getting to your bank account is crucial! When you trade Direct, your redemption proceeds are sent directly to a bank account of your choosing. They don’t have to take the extra step of being first sent to the distributor’s account, which is likely the case in an omnibus or sweep account. When you trade Direct, you also can instruct your distributor to send redemption proceeds to an alternate destination. That’s very important if there is a problem with your bank!  
• Work with a Treasury Management Solution like Treasury Curve. A provider with experience in both investment and cash management can help you manage your money wisely and fulfill your obligations to your shareholders, employees, and vendors. Additionally, a solution where you can affordably manage cash and investments in one place can simplify your treasury operations.