Today, choosing where and how to hold your cash reserves is as important as any investment decision.
Recent shocks to the global banking system have made it clear that great care is needed when it comes to selecting a primary banking institution.
Today, it is important to be well informed on wide-ranging topics, such as the strength of a financial institution’s balance sheet, the effectiveness of the cybersecurity protections it provides, and the quality of the advice and services it offers. The rate of interest you earn on your money is only part of the equation.
Here is where we recommend focusing your attention as you evaluate the long-term security of your assets and where you entrust your wealth.
What are the limits of government protection?
Following recent market volatility and uncertainties around the banking industry, questions have arisen regarding the extent of federal government protections for deposit accounts.
U.S. deposit accounts are protected by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per each depositor account if it is held at an insured bank. Keep in mind:
- If you maintain multiple accounts of the same type (two or more deposit accounts, for example) at a single bank, the combined deposits are insured up to the standard $250,000 amount
- The interests of each individual in all joint accounts at the same FDIC-insured depository institution are added together and insured up to $250,000 per individual
- For trusts, the amount of the insurance coverage is based on the number of beneficiaries, and in some cases, the interests allocated to them, up to $250,000 per beneficiary, per insured bank
- You do not have to apply for FDIC protection. Coverage is automatically provided for each type of deposit account ownership category1
If your accounts hold more than the standard insured amount, it is the stability/capitalization of the institution where you bank that protects your deposits beyond the FDIC-insured amount.2
Can your bank weather adverse market conditions?
Basel III, an international regulatory accord, introduced a set of reforms to mitigate risk within the global banking sector in the wake of the Great Recession (2008). These tighter regulatory controls and capital requirements require banks to maintain certain leverage ratio. For example, one key ratio sets limits on how much money an institution can lend relative to how much capital it devotes to its own assets. Another requires banks to keep certain levels of reserve capital on hand. While not fully implemented by all countries signing the pact, these and other new regulations have helped strengthen the global banking system.
While there is enormous complexity to these efforts, three closely watched indicators can help you monitor the fiscal health of your financial institution:
- 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 as reserves so that they are able 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; specifically, in its 10-K or 10-Q reports
- Credit rating—Credit rating assesses the ability of countries and businesses, including financial institutions, around the world to meet their financial commitments. The most common rating agencies are Standard & Poor’s (S&P), Moody’s and Fitch, which evaluate credit ratings based on a letter scale. Each agency’s highest credit rating 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?
Today, as online banking, investing and payment systems become ever more embedded in the financial lives of people around the world, 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 not only monitor money movement transactions for fraud, but software, networks, storage devices and other technology assets. Among the notable—and often visible—results of these efforts are multi-factor authentication; rigorous privacy controls; real-time notifications when problems occur; training and educating staff and clients to improve their security postures as new threats emerge.
How much cash do you need to have on hand?
Once you are satisfied with the safety and security of your assets at your core banking institution(s), consider how much liquidity or cash on hand you require day-to-day and longer-term to support your investment strategy.
In uncertain times, it is natural to want to hold on to more cash than you may need so that you have a psychological safety net, perhaps leading you to go beyond having enough liquidity to:
- Cover operating expenses for yourself and your family
- Fund large purchases
- Optimize your portfolio by taking advantage of unexpected opportunities
However, when inflation hits and interest rates rise, holding too much cash can be counterproductive to your goals. As with managing risk in the longer-term investments on your balance sheet, you might diversify and put excess cash to work via:
- A day-to-day cash management strategy—Checking, savings or money market fund account that gives you ready access to cash
- Short-term liquidity—Three, six and nine-month certificates of deposit (CDs) or other short-term investments
- Long-term liquidity—12- or 24-month CDs, short-term investments, or short-duration fixed income
Learn more about how to manage your cash here.
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. You can also learn more here.
For more information on our cyber and fraud protections, please contact your J.P. Morgan team to schedule a session with our cybersecurity or fraud prevention specialists on how to secure your technology and your financial accounts.
Federal Deposit Insurance Corporation Resource
The strength and security of J.P. Morgan
Our Financial Strength3
- Basel III CET1 Capital Ratio: 13.2%4
- Credit Rating: Moody’s Investors Service Aa26 | Standard & Poor’s A+6 | Fitch Ratings AA6
1FDIC insurance is limited to these types of accounts: negotiable order of withdrawal (NOW) accounts, savings accounts, money market deposit accounts (MMDAs), time deposits such as certificates of deposit (CDs), cashier's checks, money orders, and other official items issued by a bank. Deposits not covered by the FDIC include securities, mutual funds and similar types of investments, Treasury securities (bills, notes and bonds), and safety deposit boxes or their contents.
2J.P. Morgan Private Bank website, March 23, 2023: The ripple effects of the bank crisis.
3As of December 31, 2022, unless otherwise indicated.
4Represents estimated common equity Tier 1 (“CETl”) capital and ratio under the Basel lll Fully Phased-In capital rules to which the firm will be subject as of December 31, 2022. Common equity Tier 1 (“CETl”) capital, Tier 1 capital, Total capital, risk-weighted assets (“RWA”) and the CETl, Tier 1 capital and total capital ratios and the supplementary leverage ratio (“SLR”) under the Basel lll Fully Phased-In capital rules, to which the firm will be subject commencing December 31, 2022, are considered key regulatory capital measures. These measures are used by management, bank regulators, investors and analysts to assess and monitor the firm’s capital position. For additional information on these measures, see Capital Risk Management on pages 86-96 of the firm’s Annual Report on Form 10-K for the year ended December 31, 2022.
5 The ratio of the allowance for loan losses to end-of-period loans excludes the following: loans accounted for at fair value and loans held-for-sale; purchased credit impaired (“PCI”) loans; and the allowance for loan losses related to PCI loans. Additionally, Real Estate Portfolios net charge-off rates exclude the impact of PCI loans.
6Long-term issuer rating for JPMorgan Chase Bank, N.A.