When dealing with cash deposits, you should always consider the strength of a financial institution’s balance sheet, the effectiveness of its cybersecurity/fraud prevention and the quality of services it offers.
The preservation of wealth stems from well-managed money, and that all starts with shrewd cash conservation. From effective cash management to investment planning, a balanced portfolio can mitigate risk and augment performance, safeguarding assets across time.
When it comes to regulating your pool of cash reserves, cash management is a simple strategy that can be used to enhance yields. With that said, clients who are not able to stay on a defined cash management approach may find it difficult to achieve long-term goals.
Recent turbulence in the U.S. banking system has indicated that safety and security of liquid assets is crucial. Today, it is important to be well-informed on a range of topics. When dealing with cash deposits, you should always consider the strength of a financial institution’s balance sheet, the effectiveness of its cybersecurity/fraud prevention and the quality of services it offers.
Weathering the Storm
In times of uncertainty, you want to ensure that your assets remain accessible. When assessing a bank’s robustness, it pays to acknowledge certain characteristics.
Established in the wake of the 2008 financial crisis, Basel III—an international regulatory accord—introduced a set of reforms to mitigate risk within the Global Banking sector. Tighter controls and additional capital requirements required banks to maintain certain leverage ratios. One key ratio set limits on how much cash an institution could lend, relative to the amount of capital devoted to its own assets.
Additional obligations meant that banks had to maintain certain levels of capital reserves. As new directives helped to strengthen the system, a language emerged. Today, we’re able to use this vernacular to identify an institution’s economic resilience.
When analyzing the strength and stability of a bank, remember to consider the following:
Common Equity Tier 1 (CET1) Capital – This is the core capital that a bank holds in its capital structure. Regulators require banks to hold certain levels of Tier 1 and Tier 2 capital reserves. This allows institutions to absorb losses without any repercussions. The minimum Tier 1 capital ratio is 6% of the bank’s risk-weighted assets.
CET1 Ratio – This figure compares a bank’s capital against its risk-weighted assets to determine its ability to withstand financial distress. A low CET1 ratio shows that a bank may not be able to absorb a financial shock. CET1 information can be found in a bank’s public filings.
Credit rating – A credit rating assesses the ability of countries and businesses (including financial institutions) to meet their financial commitments. The most common rating agencies are Standard & Poor’s (S&P) and Moody’s and Fitch, which evaluate credit ratings based on a letter scale. Each agency’s highest credit is either “AAA” or “Aaa,” demonstrating strong reliability and low risk. Ratings are updated on a quarterly basis and posted on each agency’s respective website.
How strong are your bank’s investments in cybersecurity protections?
As online banking, investing and payment networks become ever more embedded in our financial lives, cyber criminals are finding equally sophisticated ways to insert themselves into the global banking system.
To protect client assets and information (as well as their own operations) financial institutions invest heavily in computer systems that monitor cash movement transactions for fraud, as well as software, networks, storage devices and other technology assets.
Notable results of these efforts include multi-factor authentication; rigorous privacy controls; real-time notifications and educational programs. By leveraging the positive impact of these practices, clients and staff are able to improve their security postures and stay informed.
Effective Cash Management
The allocation of cash reserves differs from client to client. In order to operate sensibly and efficiently, cash management tactics must be tailored to the individual. In our practice, four key components remain integral:
- Plan – We understand your risk profile and strategize accordingly
- Projection – Working towards a best-case scenario, we anticipate how your plans will pan out
- Segmentation – Based on projections, we segment the operating cash reserve (daily), predictable cash reserve (1-mths ~ 9-mths) and strategic cash reserve (12-mths ~ 36-mths)
- Execution – Following segmentation and an agreed plan, we implement tailored strategies that are carefully constructed—protecting your wealth across the board
We can help
The safety and security of our clients’ assets are our top priorities. Your J.P. Morgan team can answer any questions you may have about how we protect your accounts.
For more information on our cyber and fraud protections, please contact your J.P. Morgan team. Schedule a session with our specialists, and discover how we can secure your technology and financial accounts.
