CFO Checklist: How to Mitigate

Single Bank Failure Risk

With the closing of Silicon Valley Bank1 and Signature Bank2, there are a growing number
of companies, as well as individuals, who will feel the direct and indirect effects.

CFOs and organizations should evaluate risk, mitigate it as much as possible, and make
appropriate plans:

• Contingency planning: Advanced planning to prepare for future events

• Continuity of operations planning: Remain in business should a sudden adverse

event happen

• Continuity of leadership: What you do when the owner dies or is incapacitated

Here is a checklist of steps CFOs should consider to minimize exposure in the event of a
single bank failure.

1
Have at least two, if not more, financial institutions where deposits don’t
exceed the FDIC insurance limits of $250K.

2
Create a bank account at a different bank that has enough funds to
cover as many payrolls as you feel necessary, with the minimum of a full
payroll plus tax payments, insurance and any other items that need to be
paid (e.g. 401K) for at least one month. More is better.

3
Research the financial institutions where you bank.
a. Check them out with either Moodys, Standard & Poor’s, or Fitch
b. All banks are required to publish their balance sheets and
income statements. You will usually find them under the “investor” link.

4
Evaluate services designed to spread your deposits across multiple
banks to remain under the FDIC-insured cap.
a. Certificate of Deposit Account Registry Service (CDARS). It is a
turnkey deposit brokerage. IntraFi is the best-known provider.
b. Insured Cash Sweep (ICS) Services. Each increment is insured and
the host bank is the only custodian.

5
Put excess funds in short-term US Treasury Notes.
a. Create a “Treasury ladder portfolio,”4 which mimics a money market fund,
but is private to your company. You can line Treasury Bill maturity dates up
to cover known expenses or simply diversify across maturities.
b. Don’t confuse a money market fund with a money market deposit account.
The latter would be part of the $250K FDIC aggregate insurance, the former
would not.

6
Receivable streams, from credit cards, ACH, wires and check deposits
should be split among more than a single bank to balance out risk.

7
Payments to vendors, employees and others can be made out of a single
bank with weekly transfers to cover those payments.

8
Weekly Cash Flow Forecasts should be maintained.
a. Meet weekly with the CEO and other C-Suite members to make sure
everyone is on the same page as far as the cash runway.
b. Use your financial management system's auto-payment capabilities rather
than your vendor's to more tightly control outgoing cash.

9
Lines of credit should be established, whether they are primary or
secondary, including the ability to factor receivables.

10
Learn basic bank math.5 To generate positive net interest margin,
bank loans must be long term to earn higher rates than those paid
on deposits -- this delta is the core metric of profitability. The delta
between assets (loans) and liabilities (deposits) is the bank's equity,
or the core metric of its health.

11
Keep abreast of the financial health of institutions that matter to your
company. Read the news not only about your industry, but of your
bank(s), other essential and mission critical customers, and vendors.

12
Government bailout is not a certainty for all banks – consider those with
greater than $250B in assets due to increase in Fed monitoring and
stress testing.

Sources
1. https://www.cfo.com/banking-capital-markets/2023/03/silicon-valley-bank-svb-fdic-collapse-interest-rate-fixed-assets/
2. https://www.cnbc.com/2023/03/12/regulators-close-new-yorks-signature-bank-citing-systemic-risk.html
3. https://www.intrafi.com/
4. https://www.schwab.com/fixed-income/bond-ladders
5. https://www.linkedin.com/feed/update/urn:li:activity:7040705652658208768/

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