Karbon CFO on Cash Diversification Strategies in the Wake of SVB Shockwave

Where were you when you heard about Silicon Valley Bank? It’s the classic crisis question now being applied to the recent banking emergency that may be under control. Fingers crossed.

These shocks to the financial system get CFOs either glued to their desks or hiding under them, which is why many who escaped this latest episode — and many who didn’t — are pursuing cash diversification strategies to ensure stability while reassuring their boards.

In an interview for “PYMNTS CFO Series: What’s Different?,” Karbon CFO Frank Colich remembers his phone blowing up with “Have you heard?” messages amid a sense of panic, particularly in the FinTech community. He was suddenly the person everyone wanted to talk to.

“Clearly, a microscope is now turned on treasury management,” he said. “It creates a little bit more effort on our end to make sure we’re diversifying our risk as much as possible on how we’re managing our cash. It creates a bit more stress and a bit more work to make sure that we’re staying on top of it.”

Colich said Karbon had no cash parked at SVB, which not all his peers could say, however, it does hold some funds at First Republic, and he’s “keeping an eye on that.”

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He jumped on the situation by spreading out Karbon’s cash in a series of $250,000 deposits in some 30 different banks to ensure FDIC protection should this grow into a banking pandemic, you might say, and his company is protected no matter what.

It’s also pushed him towards top-tier banks like JPMorgan Chase, where he’s just completed opening an account while retaining CIBC as Karbon’s primary bank.

“I’ve got to make sure I’m compliant with them,” he said. If there’s a silver lining it’s that the SVB meltdown has triggered more communication between banks and accounting teams as boards are nervous and CFOs are seen as the ultimate arbiters of secure liquidity.

Leveraging the FDIC Safety Net

After moving Karbon’s cash for an optimal FDIC safety net, Colich has been wondering where the FinTech is with the solution that does this for smaller accounting teams especially, as his small department is suddenly managing many more relationships.

“I don’t want to have to maintain 30 different bank accounts,” he said. “If there’s a service that can offer to spread the risk on their own, then that could be an interesting way. The other way I was looking at it was from an insurance hedge. Is there any type of insurance where if I want to pay insurance to cover above and beyond the 250k, does that exist?”

While this is an opportunity for a clever FinTech to create the solution Colich and his counterparts across finance need right now, it’s also a time to be on alert as banking hysteria is an ideal situation to be exploited by fraudulent actors preying on frightened companies.

“We have a lot of vendors and customers affected by it, so they’re going to be like, hey, change bank accounts. But my spidey senses pick up,” he said. “Is this legit or is this a fraudster coming in? So, let’s not make any changes until we do the Zoom call verifying it because I don’t want to lose cash from any phishing attempt or whatnot.”

That’s the understandably paranoid air CFOs are breathing right now. Colich says he’s started checking bank stock prices daily, scrutinizing line items like adjusted other comprehensive income on financial reports to assess risk. It’s also a good time to focus on fundamentals.

“At Karbon, I’m building out a new team, and one muscle that I always want to build, no matter how much cash I’ve got in the bank, is doing our weekly cash flow forecast,” he said. “I don’t care if you have $100 million in the bank. Are we going to hit our cash plan on any given week, in any given quarter? Let’s make sure we know what customers haven’t paid, and what vendors are asking to be paid. Having had that tool in my toolbox has really helped.”

When in Doubt, Ask Another CFO

Risk and compliance are now taking up the time of many CFOs in the wake of the crisis that started with SVB and quickly metastasized. Colich sees the current macroeconomic environment as one where this could happen again, and he doesn’t want to be caught out.

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“It’s cause and effect almost,” he said. “Increasing interest rates ended up harming this giant bank that we were all so familiar with and relied on. I’m curious, what else is out there? It doesn’t have to be banking. What other industries could be negatively affected?”

For example, he wonders if there’s a pension fund version of the SVB sitting out there.

It’s at such times when Colich said he turns to other CFOs and even board members to run things by, gather market intel, and gain a keener understanding of what could go wrong next so that Karbon is as far away from it as possible, protecting its own platform clients.

“I’ve leveraged a lot of my network. All CFOs should,” he said. “That’s been a good support group to get through any crisis. … In the tech scene or the SaaS [software-as-a-service] scene, whatever scene you’re in, having that support group, I don’t know what I would do without it. I would not be shy to reach out and ask for help or advice from anybody, whether it’s an investor or another CFO.”