Welcome to another episode of the #AskaCFO podcast. In this episode, James Vanreusel, CEO and founder of Vanreusel Ventures, explores the topic of treasury management and provides insights into the current state of the banking industry.
Key takeaways:
- The banking industry's current challenges: acquisitions, higher interest rates, and lower deposits.
- The importance of diversifying banking relationships for operational purposes.
- Bank selection considerations based on company size and needs.
- Understanding the distinction between the bank's balance sheet and the investment management area for enhanced security.
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Welcome to another episode of the Ask a CFO podcast. My name is James Vanreusel, CEO and founder of Vanreusel Ventures.
And today we're going to discuss treasury management, all about banks and where you put your money. I would say it has been, but it is a tumultuous time in the banking industry.
We are currently seeing banks being acquired, including SVB, Signature Bank, First Republic Bank, and all the regional banks being under significant stress due to higher interest rates and lower deposits.
So what should one do with money?
I think quite a bit has been written about this, but the way I look at it is, I think it's quite simple.
You definitely want to have more than one bank just for operational purposes. So if something happens to one of them, even if there is a delay or anything of a week, it can impact payroll or anything else.
So just having two banks is really good. I think ideally you want to have one large bank that is very, very stable, and then one bank that might be more hands-on with you.
And I'm thinking of times when you're a smaller company. Big, big, big companies if you're S&P 500 you can go with the biggest bank and they'll treat you very well but if you're a small company less than 50 million in revenue then a big bank might not take as well care as well care of you.
So therefore you you want to go with a smaller bank as well of course there are some risks there but then you want to look at what's the FDIC insurance that they carry and many banks right now are carrying significant FDIC insurance because they are spreading the risk around and you can find banks that are very focused on startup banks or startup companies in the Bay Area for instance that you might think are higher risk but they are carrying insurance of up to five or six million dollars so that is very attractive there.
You also want to work with a bank that is able to give you a a good yield on money markets and other investments.
So sometimes with bigger banks, they will because they have a big balance sheet, they will not give us as high a yield.
However, some of the smaller banks will do that. One thing to look out for is whether the money that you are putting in that is above the insurance amount. So even if the insurance is $6 million, if you have cash that's above that, is that money still on the bank's balance sheet?
Because many times it can be, and so you want to ask about that. If the money is going into the investment management area of the bank, it'll be separate from the bank's balance sheet where all the loans are and the deposits.
And so if anything happens to the bank, that money will be safeguarded. So that is something else that you really want to look at.
So those are the my thoughts here. from just having had many conversations over the last five or six weeks about this.
And if you want any more details, just reach out, the link in the show notes, social media, and I'd be happy to respond.