Recent turmoil in the U.S. banking system has brought the treasury management function of all institutions into sharper focus. Within the corporate bankruptcy space, federal and state fiduciaries, such as receivers and U.S. trustees, often manage substantial cash positions for the benefit of receivership or bankruptcy estates. In order to protect estates for the ultimate benefit of creditors or even defrauded victims, these fiduciaries are typically mandated with minimizing risk. In the wake of recent bank failures, it is more important than ever to carefully consider the cash-management options available for the needs of each particular case and the risk tradeoffs to analyze when operating within the structures of the U.S. banking system.

An Overview of the U.S. Banking System and FDIC Insurance

At banking institutions insured by the Federal Deposit Insurance Corp. (FDIC), deposits up to $250,000 held by an individual or entity at each bank are insured. As of Q4 2022, there were 4,706 FDIC-insured banks in operation. While the recent bank failures in 2023 have heightened concerns about bank stability, the failure of FDIC-insured institutions have been relatively rare since 1933. According to the FDIC’s published data, there were no failures in 2022 or 2021, four in 2020, four in 2019, zero in 2019, eight in 2017 and five in 2016.