8 ms·

People do the same thing in the US to take advantage of FDIC insurance, which only goes up to $250,000. Not terribly novel.

petercooper 5y ago
UK business here.. we do the same because the UK equivalent guarantees bank accounts (even for businesses) at £85,000 (~$120,000) each. I have no idea what businesses with huge cash reserves do as you can quickly run out of banks.
- jonasdegendt 5y ago
  They put the money in short term treasuries, I reckon. Money market funds come to mind as well.
- joshfraser 5y ago
  you can have multiple accounts at the same bank. some banks like HSBC will take care of splitting it up for you behind the scenes.
  - joosters 5y ago
    The UK bank cover is per-bank, not per-account.
    - jfk13 5y ago
      Also worth noting that when a bank operates under multiple names, such as First Direct (part of HSBC) or Cahoot (a division of Santander), the cover applies to your total balance across all accounts, regardless of the name. So it's worth knowing which "banks" are really just different different brands of the same parent institution, if you're trying to diversify because of this limit.
  - bazzargh 5y ago
    No - your £85k guarantee is across all your accounts with that bank (even across the same group of banks). Straight from the source: https://www.fscs.org.uk/what-we-cover/banks-building-societies/ https://www.fscs.org.uk/what-we-cover/banks-building-societi... _If you have money in multiple accounts with banks that are part of the same banking group (and share a banking licence) we have to treat them as one bank. This means that our compensation limit applies to the total amount you hold across all these accounts, not to each separate account._
  - arcticbull 5y ago
    Further to what other replies mentioned, when a bank (or in the US a brokerage account) will do is actually sweep your cash balance into different account spread across multiple banks.
- lostlogin 5y ago
  > I have no idea what businesses with huge cash reserves do as you can quickly run out of banks. To take an extreme example, imagine running Apple’s reserves. It’s probably close in scale to the finances of a fairly large country (and considerably more profitable).
  - nimish 5y ago
    Braeburn capital exists for this reason.
  - qnsi 5y ago
    Apple revenue (2020) $274 billion Czech Republic GDP (2021) $276 billion
    - lostlogin 5y ago
      The reserves are another part of this too, though countries would probably be primarily managing debt, while Apple has a lot of savings too.
    - arcticbull 5y ago
      It's an especially interesting statistic because GDP is calculated as money velocity times supply. Meaning, each time a unit of currency changes hands in any purchase, it counts towards GDP. That means Apple, one entity, receives (not including spending) as much money as every single transaction that occurred in the entire country of the Czech Republic in a given year. Any people say Apple is overvalued...
- abeppu 5y ago
  > you can quickly run out of banks Not that individual depositors get a say, but isn't this (the consolidation of banks to relatively few players) the larger source of risk? In the US, my understanding is that there are a lot of small local banks, but that they are all dependent clients on a much smaller number of larger banks. If I go to my local credit union, I don't think I have a straight-forward way of knowing which mega-bank they depend on, if any. If "per-bank" limits are meant to spread out risk, isn't this undermined by consolidation? Or do I misunderstand the structure of mutual dependence between banks?
  - eru 5y ago
    The US has a history of unit banking. Ie super small banks that only have one branch in a single city. That's because branch banking used to be banned. Predictably, the US also had a history of bank instability. Canada, by comparison, has enjoyed stable banks with many branches diversified over the whole country for centuries.
    - vdqtp3 5y ago
      I get that this is pedantic, but the first bank in Canada was established in 1817. While that's just over two centuries ago, that wasn't a "branch bank", it was literally the first bank in the country. I'd ask for sources if you want to make claims that broad.
      - eru 5y ago
        See eg https://www.alt-m.org/2015/07/29/there-was-no-place-like-canada/ https://www.alt-m.org/2015/07/29/there-was-no-place-like-can... Well, 'centuries' interpreted as an integer multiply of 100s of years was probably overstating things a bit.
    - abeppu 5y ago
      But so your view is that small banks are prone to instability in virtue of being small. I get that with many banks, the probability that at least one has problems increases to 1. My hypothesis was that large banks are risky in virtue of being concentrated; though in most years they may all be fine, occasionally big bets made by a single institution can impact a large minority of depositors. I suppose in a context where the state is prepared to prop up banks in times of crisis, perhaps propping up a few big ones is less complex than trying to support many small ones?
- csomar 5y ago
  Big businesses use current accounts for day-to-day operations. For savings, they have access to a variety of securities which they can liquidate overnight and might pay them some interest. Of course, this is not limited to big businesses. You can do the same with an IB brokerage account but I guess the added complexity is what puts people off.
cameronh90 5y ago
I think as far as FDIC and the like go, that's probably the intention of the policy. Less money for them to cover if a bank goes bust and the country has diversified its savings.
- tharne 5y ago
  Also, FDIC was designed for everyday folks, not wealthy families or large investors. Exceedingly few people have that much cash on hand. Wealthy people opening multiple accounts to stay under the FDIC limit is just an example of folks finding a loophole to receive a government benefit that was never really intended for them in the first place.
  - dylan604 5y ago
    Most wealthy people don't put all of their wealth in a cash account that earns them no money. Sure, they might have some largish amounts in cash, but the majority of it will be invested making more money.
    - jdavis703 5y ago
      Even so, taking the original post in good faith one could assume this also applies to SIPC limits (currently $500k).
    - bluGill 5y ago
      If you are extremely wealthy it wouldn't be a surprise to need more than that limit in your bank accounts just to cover ongoing expenses. A couple large mansions, each with staff to pay... Of course you probably want those in separate accounts anyway just in case some staff defrauds you - they only get the one account.
      - dylan604 5y ago
        If you're playing the wealthy game, you don't have anything. Your corporate shells own everything, and each shell would have its own accounting.
deleted 5y ago
[deleted]

petercooper 5y ago

UK business here.. we do the same because the UK equivalent guarantees bank accounts (even for businesses) at £85,000 (~$120,000) each. I have no idea what businesses with huge cash reserves do as you can quickly run out of banks.

jonasdegendt 5y ago
They put the money in short term treasuries, I reckon. Money market funds come to mind as well.
joshfraser 5y ago
you can have multiple accounts at the same bank. some banks like HSBC will take care of splitting it up for you behind the scenes.
- joosters 5y ago
  The UK bank cover is per-bank, not per-account.
  - jfk13 5y ago
    Also worth noting that when a bank operates under multiple names, such as First Direct (part of HSBC) or Cahoot (a division of Santander), the cover applies to your total balance across all accounts, regardless of the name. So it's worth knowing which "banks" are really just different different brands of the same parent institution, if you're trying to diversify because of this limit.
- bazzargh 5y ago
  No - your £85k guarantee is across all your accounts with that bank (even across the same group of banks). Straight from the source: https://www.fscs.org.uk/what-we-cover/banks-building-societies/ https://www.fscs.org.uk/what-we-cover/banks-building-societi... _If you have money in multiple accounts with banks that are part of the same banking group (and share a banking licence) we have to treat them as one bank. This means that our compensation limit applies to the total amount you hold across all these accounts, not to each separate account._
- arcticbull 5y ago
  Further to what other replies mentioned, when a bank (or in the US a brokerage account) will do is actually sweep your cash balance into different account spread across multiple banks.
lostlogin 5y ago
> I have no idea what businesses with huge cash reserves do as you can quickly run out of banks. To take an extreme example, imagine running Apple’s reserves. It’s probably close in scale to the finances of a fairly large country (and considerably more profitable).
- nimish 5y ago
  Braeburn capital exists for this reason.
- qnsi 5y ago
  Apple revenue (2020) $274 billion Czech Republic GDP (2021) $276 billion
  - lostlogin 5y ago
    The reserves are another part of this too, though countries would probably be primarily managing debt, while Apple has a lot of savings too.
  - arcticbull 5y ago
    It's an especially interesting statistic because GDP is calculated as money velocity times supply. Meaning, each time a unit of currency changes hands in any purchase, it counts towards GDP. That means Apple, one entity, receives (not including spending) as much money as every single transaction that occurred in the entire country of the Czech Republic in a given year. Any people say Apple is overvalued...
abeppu 5y ago
> you can quickly run out of banks Not that individual depositors get a say, but isn't this (the consolidation of banks to relatively few players) the larger source of risk? In the US, my understanding is that there are a lot of small local banks, but that they are all dependent clients on a much smaller number of larger banks. If I go to my local credit union, I don't think I have a straight-forward way of knowing which mega-bank they depend on, if any. If "per-bank" limits are meant to spread out risk, isn't this undermined by consolidation? Or do I misunderstand the structure of mutual dependence between banks?
- eru 5y ago
  The US has a history of unit banking. Ie super small banks that only have one branch in a single city. That's because branch banking used to be banned. Predictably, the US also had a history of bank instability. Canada, by comparison, has enjoyed stable banks with many branches diversified over the whole country for centuries.
  - vdqtp3 5y ago
    I get that this is pedantic, but the first bank in Canada was established in 1817. While that's just over two centuries ago, that wasn't a "branch bank", it was literally the first bank in the country. I'd ask for sources if you want to make claims that broad.
    - eru 5y ago
      See eg https://www.alt-m.org/2015/07/29/there-was-no-place-like-canada/ https://www.alt-m.org/2015/07/29/there-was-no-place-like-can... Well, 'centuries' interpreted as an integer multiply of 100s of years was probably overstating things a bit.
  - abeppu 5y ago
    But so your view is that small banks are prone to instability in virtue of being small. I get that with many banks, the probability that at least one has problems increases to 1. My hypothesis was that large banks are risky in virtue of being concentrated; though in most years they may all be fine, occasionally big bets made by a single institution can impact a large minority of depositors. I suppose in a context where the state is prepared to prop up banks in times of crisis, perhaps propping up a few big ones is less complex than trying to support many small ones?
csomar 5y ago
Big businesses use current accounts for day-to-day operations. For savings, they have access to a variety of securities which they can liquidate overnight and might pay them some interest. Of course, this is not limited to big businesses. You can do the same with an IB brokerage account but I guess the added complexity is what puts people off.

cameronh90 5y ago

I think as far as FDIC and the like go, that's probably the intention of the policy. Less money for them to cover if a bank goes bust and the country has diversified its savings.

tharne 5y ago
Also, FDIC was designed for everyday folks, not wealthy families or large investors. Exceedingly few people have that much cash on hand. Wealthy people opening multiple accounts to stay under the FDIC limit is just an example of folks finding a loophole to receive a government benefit that was never really intended for them in the first place.
- dylan604 5y ago
  Most wealthy people don't put all of their wealth in a cash account that earns them no money. Sure, they might have some largish amounts in cash, but the majority of it will be invested making more money.
  - jdavis703 5y ago
    Even so, taking the original post in good faith one could assume this also applies to SIPC limits (currently $500k).
  - bluGill 5y ago
    If you are extremely wealthy it wouldn't be a surprise to need more than that limit in your bank accounts just to cover ongoing expenses. A couple large mansions, each with staff to pay... Of course you probably want those in separate accounts anyway just in case some staff defrauds you - they only get the one account.
    - dylan604 5y ago
      If you're playing the wealthy game, you don't have anything. Your corporate shells own everything, and each shell would have its own accounting.

deleted 5y ago

[deleted]