It is absolutely ridiculous for someone with more than a few million sitting in checking to, well, have it sitting in checking.
Not only is there the 250k FDIC limit, but that's leaving money on the table. At least put it in highly liquid and stable securities of some kind so you're not bleeding it. And, of course, accounts can get locked out. Anything over a couple million should be split across two different institutions minimum.
> It is absolutely ridiculous for someone with more than a few million sitting in checking to, well, have it sitting in checking.
Suppose you have 500 engineers each making on average $200k (some make above, same make below). That is about about 17000 / month or 8500 biweekly. It takes time to transfer money. What options do you have for storing the money that is immediately payable. Stocks are volatile. Treasury bills or bonds could work, but it would be a good idea to have it such that the money is deposited a day or two early so you can make pay roll.
500 * 8500 = 4.25 million, so even a medium-size startup simply using SVB for their payroll checking (due today, so they should have had it in by yesterday, and recall ACH processing times of 2-3 days) could easily have a few million sitting in a checking account as part of weekly practice.
In the US, it takes 24 business hours to transfer money, sometimes less. Payroll is easy as you know the exact amount and it's on a precise schedule set months in advance.
Additionally, there is at least one person at the company whose full-time job is to handle this. Making a transfer every Tuesday or Wednesday or whatever is well within a workload. When I say "sitting in checking" I quite obviously mean more than two weeks by "sitting".
Also, I was mostly referring to series-A startups that have, for example, single digit millions in the bank. Keeping that all in checking is dumb. Larger companies that are moving millions each week can afford to have special arrangements with their bank or banks to limit liability independent of FDIC. A line of credit, perhaps, that is paid off a week or three later, secured by a bundle of securities held at the same institution, for example. I'm fairly sure a bank run can't touch those.
There are so many possible solutions to this problem.
Maybe it's because I've been burned hard by banks before, but I'll never trust them to not do precisely what SVB did here (in some fashion). Everything's great until it isn't.
EDIT: Engineers making $200k isn't $200k in cash comp, either, FYI. (And anyone with 500 of them has more than one bank account already.)
No. Checks clear in 24 business hours, and fedwire wire transfers work same day if they are submitted early enough, and in no case more than 24 business hours (for domestic wires). Oftentimes domestic fedwire transfers are nearly real-time, and there is a plan for further modernization to speed things up in more cases.
ACH transfers are also 24 business hours.
The check clearing thing is called Check 21 and it was a big thing back in 2004 when it went into effect.
Not only is there the 250k FDIC limit, but that's leaving money on the table. At least put it in highly liquid and stable securities of some kind so you're not bleeding it. And, of course, accounts can get locked out. Anything over a couple million should be split across two different institutions minimum.