As long as it is not First Republic Bank or Signature Bank, I wouldn’t overthink the decision too much.
What you should worry about is reducing the various risks you face by:
1) Having at least 2 distinct banks with no overlap in who has admin access. This is the most important step. In the US, an insider at your company is way more likely to commit fraud or get phished than your bank failing. Just like you’d never operate your production app from one availability zone, never rely on one bank.
2) If you have $10mm or more, consider having a portion of your funds at each bank going into a money market sweep. These off balance sheet facilities might take a few days or more to access from an operational standpoint during a bank failure, but are not subjected to the bank’s credit risk. However, money markets have their own different risks so I’d never recommend having more than 50% in them.
3) If you have more than 36 months of runway, having a portfolio of T-Bills. While U.S. Treasury Bills are often referenced as “risk free”, that ignores the fact that they can lose resell value, purchasing and holding them often involves some sort of counterparty risk, and there is always operational risk.
Please do not use one of the big four banks. It is just making the system less safe, and there are plenty of times when that decision is going to bite you (a la PPP in 2020).
For specific recommendations:
1) A credit union or community bank with a branch you can readily access. While you should never have to go in-person, it can be really useful to have it as a backup option.
2) If absolutely wanted to go with a big bank, Capital One is not a bad option.
A systematically important bank. They are subject to the most regulation (small, regional, and credit unions lobbied for looser rules) and have an implicit government backstop.
Maybe instead of avoiding questions in replies and adding an “Edit” merely to trade insults, you can educate us on why JPM Chase won’t accept cash deposits from startups, and we can learn something. However I’m not holding my breath for insights when startup cash deposits and subprime mortgages are “similar” “bad risks” to you. They have no similarity at all.
It’s true that a 24 year old start up founder can’t just walk into a BoA branch and deposit the entire series A funds into a business checking account. We just had an object lesson in why not.
That doesn’t mean there’s no way for a start up to have a banking relationship with BoA.
Why not? I am 100% missing something here, but how someone trying to deposit money into the banks may increase risks? Unless there's a reason to believe the money is stolen or otherwise could be reclaimed, which shouldn't be the case if it's coming from a major SV fund?
A deposit creates a liability for the bank. It also creates an asset that can be used to generate a return. It also creates various operational costs.
The way those three things play out the more likely it is for a depositor to suddenly ask for a lot or all his money back the more risky it is for the bank. Both in terms of creating a bank run and just in terms of losing money on the relationship.
If I walk in to Citi and say “I have ten million bucks and will need to withdraw them half a million per month” are they really not going to take my deposit?
I get that they might not want to loan me money, but the SVB problem everyone’s worried about is losing their deposits, or do I have that wrong?
> If I walk in to Citi and say “I have ten million bucks and will need to withdraw them half a million per month” are they really not going to take my deposit?
They will take your deposit, and the banker will even get a nice fat bonus for bringing in big cash deposits (well maybe not a fat one for a meager $10m). Gp doesn’t know what they’re talking about.
If you store large amounts of money, I would recommend that you have (i) multiple accounts, and (ii) make sure the account-to-account transfer links are set up, and you've tried them, potentially with large sum xfers.
Kindof like making sure you have backups and they work.
Posting as top-level comment because my original post was downvoted a ton for some reason:
I like https://mercury.com and have been using them for a few years. It's a bank wrapper, but your money is in a real bank (Evolve bank). [0]
I recommend them because:
* $1M FDIC insurance for your cash [1]
* Business banking features I use work great (paying vendors, receiving wires)
I'd be very wary of using a fintech as your window to a real bank. Mercury as a company is much more likely to fail than a bank. In that scenario, you are going to face a similar operational disruption as folks are facing with SVB today. You might go several days or even weeks without the ability to access your funds.
The regulation is very light right now on how to handle the situation when a fintech partner goes under (although is an area of focus and should mature over the next few years.
I used Azlo before Mercury, which was very similar... a wrapper around a bank. Mercury is way better. When Azlo closed they gave a month's notice and required every customer transfer their money out.
I love Mercury. Their interface is dream, a world apart from TD, Chase, BofA etc. Merucry is online-only so nothing requires a branch, ever. Wires are free and take 1 min to initiate. I don't have more than $1M in the bank but if I wanted FDIC insurance or a large institution guarantee I'd just put the excess somewhere and do 1-2 transfers a year between them.
I've heard spotty results about Evolve's responsiveness to customers, and while there may be a wrapper, that's not always who you talk to, and certainly not who is setting the rules you have to abide by.
Edit: Now I notice the "Referral payout" column. I guess that means I get something too, but I didn't think that was the case when posting the link originally.
Seems a lot of people are recommending large banks. That was one of the "fears" I read somewhere this SCB failure will give these big banks more "power". But, I also saw SVB was the 16th largest bank in the US. So going to a big bank mat not be good.
Me, I would look into local banks and do some hard work "research" and pick one of them. They tend to be more tuned into you community. Maybe a Credit Union ?
It’s unclear to me exactly what role a local bank is supposed to play in the modern era. In the old days when banks did real underwriting, a local banker would know a small business or would-be homeowner’s reputation and take it into account (for better or worse.)
Now banks just originate mortgages and use the standardized underwriting criteria provided by the buyer, usually GSEs.
All other consumer lending is almost strictly driven by credit scores.
Even medium sized businesses now have access to debt and equity markets. There are national companies that specialize in things like factoring.
I guess maybe local banks are still making loans to hyperlocal businesses like pizza shops and hair salons?
I often see “so and so development funded by Super Local Bank of the US” signs in front of new commercial developments. I’m guessing they’re hooked into the local business community and help facilitate “riskier” transactions like buying pizza shops and hair salons?
If you are worried about bank runs you can divide your deposits into $250,000 chunks and divide it between banks.
(or whatever the insured amount in your country is)
I clicked on your link, and some dude in a super fancy suit just barged into my house and took the money out of my wallet. That firm exudes the sickly sweet aroma of the hanger-on class.
If you are in Switzerland and you want a deposit over 100k to be safe put it in a Kantonalbank which is backed by the Kanton if it fails to meet its obligations. However there are some Kantons that don't do this so check first. One of the ones considered to be the safest is the zkb in Zürich.
(in the US) FDIC insurance treats business accounts the same as personal accounts. Bank accounts for corporations, partnerships, and unincorporated associations get the full $250k in FDIC coverage, separate from any owner or member of the organization.
(in the EU) the sum is $100,000 and also applies to companies.
FDIC insurance covers business accounts up to $250k per institution. The FSCS scheme in the UK covers business accounts up to £85k per institution. Where are you getting this idea from?
Whatever bank offers the best services to meet your needs.
Then do treasury management. Put excess cash in short term treasury bonds (and their non-US equivalents). These are backed by the full faith and credit of the issuing country and the markets in them are very liquid. I’m sure there is some service that will automate this for you, for a small fee.
What about brokerages like Fidelity, Schwab, Vanguard, etc?
Are holdings in money market funds/accounts in such typical brokerages protected / owned like a security? Or should one regard it also like cash, and not FDIC insured greater than $250,000? (but while also trusting those institutions are unlikely to fail or have risky policies)
The value of the money market fund is not insured, no, but the failure of the brokerage is. That said regulations are significantly stronger now for MMFs than they were when pre-2008. I guess it depends on what you're trying to protect against exactly. [1]
Will it be as easy to open an account for foreign entrepreneurs as before? I'm not foreign, just heard that's why some people used SVB because the others won't even open an account for them.
I think there's some evidence that SVB UK might have been even more entrepreneur-friendly (compared to its peers) than its US parent. "Silicon Valley Bank collapse: UK tech firms at 'serious risk' from failure, warns Chancellor Jeremy Hunt" <https://news.sky.com/story/silicon-valley-bank-collapse-uk-w...>, which is much more serious than anything Janet Yellen has said.
What you should worry about is reducing the various risks you face by:
1) Having at least 2 distinct banks with no overlap in who has admin access. This is the most important step. In the US, an insider at your company is way more likely to commit fraud or get phished than your bank failing. Just like you’d never operate your production app from one availability zone, never rely on one bank.
2) If you have $10mm or more, consider having a portion of your funds at each bank going into a money market sweep. These off balance sheet facilities might take a few days or more to access from an operational standpoint during a bank failure, but are not subjected to the bank’s credit risk. However, money markets have their own different risks so I’d never recommend having more than 50% in them.
3) If you have more than 36 months of runway, having a portfolio of T-Bills. While U.S. Treasury Bills are often referenced as “risk free”, that ignores the fact that they can lose resell value, purchasing and holding them often involves some sort of counterparty risk, and there is always operational risk.
Please do not use one of the big four banks. It is just making the system less safe, and there are plenty of times when that decision is going to bite you (a la PPP in 2020).
For specific recommendations:
1) A credit union or community bank with a branch you can readily access. While you should never have to go in-person, it can be really useful to have it as a backup option.
2) If absolutely wanted to go with a big bank, Capital One is not a bad option.