Finally, there’s an advantage to being broke—you never have to worry about where to put your cash! The failure of three banks in the past few days, and today’s sell-off in the stocks of First Republic and other banks, has put the spotlight on the inherent risk in bank accounts. Of course, putting your money into bonds or stocks is much riskier than the typical bank account, as the past year has demonstrated. Even so, companies (and wealthy individuals) should now understand it can also be perilous to keep too much money in one bank. Unless, of course, you want to bank on the federal government bailing you out any time there’s an issue. After Sunday night, it’s hard to argue with that.
What’s the alternative? Some banks offer “sweep” products that allow companies to get the advantage of the FDIC’s insurance without manually splitting up their cash between a huge number of banks. The bottom line is that companies should spread their money around some number of institutions, ensuring one single bank doesn’t get too much. You don’t want to be BuzzFeed, which disclosed today that as of Friday, it had the “majority” of its $56 million in cash at Silicon Valley Bank. BuzzFeed isn’t profitable—it needs all that cash. If the government hadn’t stepped in to backstop all of SVB’s deposits on Sunday night, a large portion of BuzzFeed’s cash would now be in jeopardy. The digital media firm did use other banks, but it seems it took an unnecessary risk.