15 JULY 2023 WorldWide Drilling Resource® Drilling Into Money Not Boring by Mark E. Battersby Managing Cash and Avoiding Bank Failures Although most small businesses face little risk of a failed bank, the recent wave of bank failures has put a new focus on the security and stability of financial institutions. Even with protections in place, a bank’s failure can be disruptive, causing delays and confusion regarding access to funds. Now that the panic from the recent bank collapses appears to be diminishing, small businesses should continue to examine their accounts to determine their level of risk and protect their deposits from potential future bank failures. Diversifying accounts is a good idea. The Federal Deposit Insurance Corporation (FDIC) insures deposits of up to $250,000 - an amount far more than the $12,100 balance for most small businesses revealed in a recent JPMorgan Chase Institute survey. Remember, however, the FDIC insures each depositor at each institution - not separate accounts at one institution. Surprisingly, it is banks which may offer the most protection from failure. The IntraFi Network, a system that can split a customer’s large deposits into small chunks that are below the $250,000 cap, sends those chunks to other banks in the system. The result? Customers have multiple FDIC-insured accounts without having to open each account. The first option involves the bank chopping a customer’s money into certificates of deposits (CDs) of less than $250,000 before placing those accounts in other institutions. While the CDs earn interest, the money can’t be withdrawn before the CDs mature. A second option involves a so-called “sweep account” where a customer’s balance in excess of $250,000 is “swept out” to other banks periodically, in smaller blocks. With both options, deposits are protected by the FDIC because, technically, they are sitting elsewhere. Although free, banks usually limit the service to only businesses with uninsured deposits. Even if eligible, however, a drilling business owner may not want to utilize either option, leading to copying bigger operations by creating a treasury strategy. Although, in the short term, bank accounts remain safe because regulators have shown a willingness to step in when needed, the experts advise it’s probably a good idea for small businesses to diversify their funds while cementing their relationship with the drilling operation’s banker or bankers. Coping with the potential of a bank failure is something which should be done today. In addition to being prepared, many strategies reducing the risk of exposure to a bank’s failure can be quite profitable for the drilling business. Mark Mark E. Battersby may be contacted via e-mail to michele@worldwidedrillingresource.com
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