Investing Corporate Cash: Security, Liquidity, Yield

On the morning of Thursday 9 March 2023, Silicon Valley Bank was a forty-year-old institution with over $200bn in assets. By Friday lunchtime, regulators had shut it down. Depositors, most of them corporates; start-ups, scale-ups, some unicorns, tried to pull $42bn worth of deposits in a single day, with another $100bn queued for the following morning. Bank runs have existed for hundreds of years, but this was the first bank run in the digital age.

Here's the uncomfortable part. The companies agonising about getting their funds out weren't excessive risk takers. They were only guilty of being a bit complacent, and a bit late. The information that sank SVB had been public for months (see more info on that below), and the deposits at risk weren't exotic bets. They were payroll accounts and operating cash: money doing exactly what corporate cash is supposed to do.

Fortunately, regulators stepped in to backstop everything even though the vast majority of deposits were not covered by FDIC cover. By Monday, confidence was restored, as was access to customer funds. But the incident stands as a reminder to treasurers of the risks associated with keeping your funds in a single institution, no matter how highly regarded they are, or how strong your relationship.

You are not a fund manager

Corporate cash investment has almost nothing in common with investing. A fund manager is paid to take risk for return. Treasurers are paid to make sure the money is there on the morning it's needed. There is a brutal asymmetry.

Yield enhancement is not the main aim. Your priorities should follow a fixed order:

Security first. Will the money come back?
Liquidity second. Can I get it when I need it?
Yield last. What can I earn while ensuring the other priorities are met?

Most policies follow this order. Here's what it means in practice.

Security is about counterparties and products

Deposit protection schemes are designed for households. The UK's FSCS covers £85,000; most EU schemes cover €100,000. Hold €5m at one bank and protection covers ~2% of it. The rest is an unsecured loan to that bank. That's the correct way to think about any large deposit: you are a lender, so behave like one. Know who you're lending to, and don't lend it all to one name.

Understanding the terms of the product is equally important. An instant-access account that you can instruct from your phone is as liquid as they come (this was the novel angle in the SVB collapse that created such a stir). 1-week and 30-day notice accounts, and fixed term accounts, all constrain your access to funds, and should reward you with a higher yield as compensation. Some institutions offer access to a portion of fixed deposits, or subject to break costs, but read the conditions carefully: this access is often at the whim of the institution, and is liable to disappear when you need it most.

More complex products should be viewed with significantly more caution. Bonds, notes, CLNs and other structured products all have different liquidity and risk characteristics. Make sure you understand the terms completely before you are enticed by a higher yield.

As an example, investors in Credit Suisse learned this the hard way in March 2023. Depositors were fine, and even equity investors got something. But holders of higher yielding capital instruments (AT1 bonds), CHF 16bn of them, lost everything in one weekend.

Liquidity is a detail until it's everything

"Can I get my money back?" has more answers than yes. Common notice deposits need 32 or 95 days. Term deposits break with a penalty, or sometimes not at all. Money market funds settle same-day, usually, but the rules allow gates and exit fees in stressed markets. Government bonds and other high quality tradeable instruments are also considered highly liquid, but only at the prevailing price.

None of this matters in normal times, which is exactly why it often gets overlooked until it is too late. Planning for a crisis isn't difficult. Match instruments to when you'll actually need the cash, keep healthy buffers in short term, liquid investments or accessible deposits, avoid complex or opaque investment products and don't assume pricing or market depth.

Yield is the last question, but it is still worth asking

With the ECB deposit facility at 2.25% as of mid-2026, cash sitting in a non-interest current account often isn't a conscious decision, it's usually a product of a lack of a decision. An idle €10m balance forgoes roughly €225,000 a year at that rate, before anyone suggests anything complex. You don't fix that with heroics. You fix it by splitting cash into what you need this month, what you might need this year, and what's genuinely surplus, then pricing each bucket properly.

However, you should beware of chasing yield, as the case study below sets out.

Case study

Silicon Valley Bank

Silicon Valley Bank is a great case study for treasurers because it gives concrete examples of a number of real risks faced in treasury management.

Complacency. SVB had a successful business model providing specialist banking services to start-ups, scale-ups, VCs and founders, who were underserved by traditional banks in the US. They made it easier for early-stage companies to access banking services, and provided them with better technology and specialist services as they grew (such as venture debt and founder lending). As a result, SVB was the natural place to hold larger balances as companies scaled and fundraised successfully. Some extremely successful start-ups and VCs had hundreds of millions, or even billions, placed with SVB when it hit the wall. At that scale, these companies really should have known better.

Loyalty. Many depositors with SVB probably knew they had too much exposure to SVB, but they were loyal because of the support SVB had given them as they grew. Loyalty is not a bad thing. It is a currency many successful start-ups happily spend on early supporters. But blind loyalty beyond a certain point becomes a danger. At the end of the day, your financial counterparties are not charities, and will act in their own best interest. You should do the same. CFOs and treasurers need to recognise this and may even have to push back against pressure from founders when loyalty starts to overlook risk.

Liquidity management in the digital age. Prior to SVB, bank runs tended to have a natural break mechanism which slowed the egress of funds. I remember watching people queue around the corner in Harcourt Street in Dublin to get their funds back from Northern Rock for a week before the bank was nationalised.

In business banking, it used to be emails or phone calls with relationship managers and manual processing at the other end. Modern business banking is increasingly built around apps and platforms, with automated processing and instant payments becoming the expectation, even over the weekend.

Prior to this, a bank run might take a few days to build up pressure. As evidenced by SVB, where almost 75% of their deposits were instructed for payment in the space of 2 days, the potential pace of bank runs has accelerated sharply.

Chasing yield. SVB's biggest mistake was trying to maximise their return on a rapidly growing deposit book in a low-interest rate environment. They did this not by investing in riskier names, their book was mostly US Treasuries and agency securities, but they extended the maturity of those investments. Unfortunately for them, as rates rose, the value of their long-term bonds fell aggressively. This wasn't an unknowable outcome, it is the textbook pricing response of fixed income securities in a rising rate environment.

US 10-year Treasury yields rising from 0.9% in December 2020 to 4.9% in October 2023, with the market value of a 10-year note bought in December 2020 falling to about 71, a drop of 29%

Before they shuttered, they were forced to sell close to $20bn of their investments, realising a loss of almost 10%.

The same job at three sizes

Start-up. Everything sits in one operating account at one bank, because that's how the company was born and nobody has revisited it. … read more show less

After SVB, the fix became standard advice in venture circles: a second bank and a money market fund. Easy to arrange in a couple of days at the cost of some ongoing operational complexity. If your runway is eighteen months of investor money, the return on that few days' work is hard to beat.

Established mid-market. Larger balances, more distractions. Cash decisions made ad hoc by whoever logs into the bank that day, or ignored when other issues demand attention. … read more show less

What good looks like is unglamorous: a one-page investment policy, counterparty limits, cash tiered into three buckets, and one named owner. Nothing complicated. Rolling deposits isn't glamorous work, managing multiple counterparties across various platforms is time consuming, but it could save the business if one of your counterparties goes to the wall.

Large corporate. At this level, you deal with banks on an equal footing or better. Bank accounts are for operational purposes, your cash balances have outgrown bank solutions. … read more show less

Segmented investment portfolios, direct holdings of T-bills and commercial paper, external managers, repo lines, diversification. The biggest risk becomes complexity. Your investment policy needs to be well-documented, but a policy permitting fifteen instruments across forty counterparties needs a proper team to monitor it.

The policy is there to protect you

An investment policy reads like bureaucracy right up until something breaks. If surplus cash is sitting in a fund that gates, the difference between a bad week and a career problem is whether the decision followed a policy the board signed. Write it before you need it.