Most companies have an investment policy. Almost none have a counterparty risk policy. That's a problem—and 2023 reminded us why. When SVB collapsed, dozens of finance teams discovered they had far more concentrated bank exposure than they realized. Not because they were reckless, but because no one had built a formal framework to monitor it.
Counting banks isn't managing risk
Most treasurers think they've solved counterparty risk because their cash sits at four different institutions. They haven't. Holding $50M across four banks doesn't reduce risk if three share the same regional deposit base, the same loan-book concentration, or the same unrealized securities losses. Correlation, not count, is what kills you in a stress event.
A practical framework
- Map your exposure by institution. Total deposits, credit lines, FX facilities, and payment rails—all in one view. If you can't build this in 30 minutes, that's your first problem.
- Set concentration limits. No single bank should hold more than 20–25% of your total liquidity. Put the cap in your investment policy before you need it—not during the panic.
- Tier by credit quality, not just yield. FDIC coverage caps at $250K; above that you're an unsecured creditor. Know which balances are exposed and where. Screen on more than ratings—add uninsured deposit ratio and held-to-maturity securities as a percentage of tangible equity. Both were leading indicators in 2023.
- Monitor bank health proactively. Track credit default swap spreads and public ratings for your top partners. A sudden CDS spike is often the first signal—well before any news breaks.
- Diversify operating accounts, not just investments. Most teams diversify money market funds but leave all operating cash in one bank. Stress-test it: if your primary bank went offline for 72 hours, could you make payroll and run vendor disbursements?
- Re-score quarterly. Bank health moves faster than most treasury calendars.
The goal isn't prediction—it's survival
The job isn't predicting the next failure. It's making sure no single institution's bad quarter becomes your liquidity crisis. Diversification isn't just an investment concept; it applies to the institutions holding your operating cash, too.
Has your team ever formally reviewed bank counterparty concentration—or did it take an external event to prompt the conversation? CurvedSpace can help you build the policy before you need it.