Treasury and banking architecture for funds — redundancy as policy

For most funds, treasury used to be the last page of the launch checklist — open an operating account at the bank the formation lawyer suggested, wire in the first subscriptions, move on. March 2023 ended that. Large banks failed in a matter of days, and the cash sitting in single-bank operating accounts turned out to be exactly what it legally was: an unsecured claim. Fund treasury management has since become a design discipline, and the organizing principle is redundancy.

What March 2023 actually established

Silicon Valley Bank — $209 billion in assets at year-end 2022, with 88 percent of its deposits uninsured — failed on March 10, 2023. Signature Bank, $110 billion in assets and roughly 90 percent uninsured, followed on March 12. The Congressional Research Service put their combined uninsured deposits at $231.1 billion. First Republic was closed on May 1 and its deposits assumed by JPMorgan Chase.

Uninsured depositors at SVB and Signature were made whole, but only because Treasury, the Federal Reserve, and the FDIC invoked the systemic risk exception — a discretionary, case-by-case determination, not a change in coverage. The industry then paid for the rescue: the FDIC’s special assessment recovered roughly $16.7 billion from 141 insured institutions, collected from 2024 through early 2026. And the FDIC’s own May 2023 report on deposit insurance reform, which favored targeted higher coverage for business payment accounts, noted that any such change requires Congressional action. The limit remains $250,000.

Three facts, then, are settled. Uninsured fund deposits are genuinely at risk. Their rescue is discretionary. And the system’s answer afterward was a bill, not a guarantee. Treasury design has to assume the next failure resolves without an exception.

The arithmetic of one bank account

FDIC coverage is $250,000 per depositor, per insured bank, per ownership category. Under the FDIC’s ownership rules, a corporation or partnership — which is what a fund vehicle, its general partner, and its management company each are — is a single depositor: all of the entity’s accounts at one bank are added together and insured up to that single limit, separately from the owners’ personal accounts.

Run the arithmetic on a real balance. A fund holding $20 million of operating and subscription cash at one bank has $19.75 million uninsured — the SVB depositor profile, reproduced exactly. Splitting that balance across a checking account, a sweep account, and an escrow account at the same institution changes nothing, because the aggregation happens at the bank level, not the account level.

Leg one: more banks, and coverage that scales

The first structural answer is the obvious one — more than one banking relationship, with defined limits on how much uninsured exposure any single institution may carry, so an outage or failure at one bank never strands payroll, capital calls, or redemptions.

The second is reciprocal deposit networks. Congress defined reciprocal deposits in 2018, and the FDIC’s 2019 implementing rule lets well-capitalized, well-rated banks hold them outside brokered-deposit treatment up to the lesser of $5 billion or 20 percent of liabilities — which is why the product is now widely offered. Mechanically, networks such as IntraFi’s ICS and CDARS split a large balance into placements under $250,000 at many separate network banks, each separately insured, while the fund keeps one banking relationship and one statement.

The caution: reciprocal coverage is operational, not contractual. It protects only the dollars actually placed at distinct insured banks before a failure date. A treasury policy that relies on a sweep network should also require verifying the placement reports, not just subscribing to the program.

Leg two: cash that is not a deposit

The second leg moves cash out of bank-credit exposure entirely. Government money market funds and direct Treasury bills substitute the credit of the U.S. government for the balance sheet of a bank — and after 2023, the regime governing money funds tightened. The SEC’s July 2023 reforms raised minimum daily liquid assets from 10 to 25 percent and weekly from 30 to 50 percent, eliminated redemption gates, and imposed a mandatory liquidity fee on institutional prime and tax-exempt funds when daily net redemptions exceed 5 percent of net assets. Government money funds are exempt from that mandatory fee.

The honest framing matters: money fund shares are securities. They carry no FDIC insurance and no government guarantee. The point of the second leg is not eliminating risk — it is holding a different risk than the first leg, so the two do not fail together.

Leg three: segregation obligations already on the books

For SEC-registered advisers, Advisers Act Rule 206(4)-2 requires client funds and securities to sit with a qualified custodian — a bank, broker-dealer, or similar institution — with private fund advisers typically relying on the annual audit exception. But note what the rule does not do: a bank deposit account satisfies the custody rule while providing zero protection against that bank’s failure beyond FDIC limits. Custody compliance and deposit-credit risk are different problems, and the SEC’s 2023 proposal to rework the framework was withdrawn in June 2025 — the rule stands as it is.

Cayman vehicles carry their own, separate obligations. CIMA’s segregation rule for regulated mutual funds requires appointing a service provider for safekeeping, keeping the portfolio segregated from any service provider’s own assets, prohibiting providers from financing their operations with it, and obliges operators to maintain policies and controls ensuring compliance. Cayman private funds must have their cash monitored — internally by the manager or by a third party; if internal, CIMA expects the auditor to confirm at sign-off that monitoring was performed throughout the year.

Redundancy is a document, not a sentiment

Each leg exists in writing or it does not exist. A treasury policy worth the name lists the banking relationships and the maximum uninsured exposure permitted at each; states what sweeps where, and when; sets the allocation between deposits and government instruments; assigns who may move cash and under what authorization; and schedules verification — placement reports, reconciliation, an annual review of the banks themselves. Allocators have learned to ask for this document, because 2023 taught them the difference between managers who had one and managers who had a bank.

The question after 2023 is not whether a fund’s bank can fail. It is whether anything about the fund’s operations changes on the day it does.

SetOne Labs pressure-tests treasury structures, banking architecture, and the policies behind them for managers and the investors evaluating them. To review a treasury design in confidence, begin a conversation.

SetOne Labs provides advisory services and general information. Nothing here is legal, tax, or investment advice.