The Custodians of Cash

_{^{IN PARTNERSHIP WITH}}

Safety in finance is quietly being rewritten. Fewer bank branches anchor Main Street. Fintech wallets and payment apps stand in for checking accounts. Cash-like yields are harvested beyond the perimeter of regulated deposits. And investors, scarred by the 2023 regional-bank turmoil but lured by liquidity and yield, are shifting into instruments and intermediaries that look less like “banks” and more like a mosaic of custodians—fund complexes, trust companies, and technology platforms. The semantics matter less than the safeguards. In 2025’s market architecture, prudence is dispersing across institutions that do not all share the same supervisory playbook. The question for a morning investor is simple: what, precisely, is “safe” now?

The official banking map continues to contract. The FDIC’s latest Quarterly Banking Profile shows the number of insured institutions fell by 41 in the second quarter to 4,421, with domestic deposits rising modestly for a fourth straight quarter even as insured deposits edged lower and estimated uninsured deposits rose by roughly 2% in the period. The Deposit Insurance Fund climbed to about $145 billion, lifting the reserve ratio to 1.36%—back above the statutory minimum—allowing the agency to end its restoration plan beginning in the third quarter. It is an incremental stabilization that nevertheless sits alongside a structurally smaller branch network and a steady cadence of mergers and consolidations.

Policy debates are reshaping confidence. Special assessments tied to 2023 failures continue to reverberate in the courts and balance sheets, while regulators revisit the post-crisis framework for capital and liquidity. Large-bank capital reform, once expected to rise, is now moving toward recalibration under the current rulemaking cycle, a potential relief for big lenders but one that will invite scrutiny of risk buffers as market conditions evolve. For depositors, the takeaways are mixed: insurance remains credible, the fund is replenished, but the institutional footprint is leaner and the competition for deposits persists.

As banks streamline, cash is pooling in vehicles that walk and talk like custody: U.S. money market fund assets stood around $7.37 trillion as of October 1, according to the Investment Company Institute’s weekly tally, with government funds taking the bulk of recent inflows. Bloomberg tracked a surge to roughly $7.4 trillion midyear, with hundreds of billions added in 2025 alone—evidence that “cash” has been recast as a fund share backed by T‑bills and repo rather than a bank liability. That shift is not merely institutional; it is retail. Payment platforms and embedded wallets have become de facto gateways to these instruments, even when users are only dimly aware of the nuances between a pass-through wallet, a prepaid balance, and a brokerage sweep.

The platform front-ends are familiar: Apple Wallet, PayPal, and large broker-led sweep programs. Apple’s strategy has tilted away from holding balance-sheet risk toward integrating finance through ecosystem partners, while maintaining Wallet’s reach across iOS—a design choice that keeps Apple close to the payment rail without being a bank. PayPal, for its part, remains one of the most ubiquitous digital wallets globally, with hundreds of millions of active accounts and a renewed push on checkout and tap-to-pay, a reminder that “who holds the balance” and “who controls the payment experience” are diverging tracks. Meanwhile, fund families such as Vanguard and Fidelity continue to absorb cash seeking yield via government and treasury money funds. Consumers are diversifying beyond traditional deposits—often unintentionally—by following yield and convenience.

This dispersion exposes a supervisory seam. Traditional deposits are insured and governed by prudential bank regulation. Wallet balances, prepaid instruments, and fund shares are supervised by a patchwork of state money-transmitter rules, securities regulation, and conduct oversight. The Treasury-led Financial Stability Oversight Council is reviewing its nonbank guidance, signaling a willingness to bring large nonbanks more squarely within a systemic perimeter if risks warrant. Central bank standard-setters are even blunter on crypto-adjacent money: the BIS warns that stablecoins “fall short” as sound money and, absent robust regulation, can threaten stability and monetary sovereignty, with the tail risk of fire sales in the assets that back them. In the U.S. and EU, legislators and competition authorities are also probing big-tech payment rails and wallet access, seeking to align consumer protection and market openness with innovation.

These are not theoretical concerns. When money migrates to entities that are not banks, the question becomes whose backstop applies. A fund prospectus is not a deposit contract; a wallet term sheet is not the FDIC handbook. As oversight adapts, regulators are attempting to preserve the singleness of money and guard against opacity in reserves, particularly where tokens and wallet-like claims interface with the banking system.

Savers increasingly arbitrate between insured deposit stability, market-based liquidity, and balance-sheet autonomy. For some, the definition of safety is a five- or seven-day liquidity window in a government money fund, not a branch teller. For others, it is T‑bill ladders and brokered CDs. The flows bear this out. Money market assets have set repeated records this year, drawing tens of billions in weekly increments at points. There has also been a revival of interest in gold via ETFs, with the World Gold Council reporting the largest first-half ETF inflows since 2020—about 397 tons—alongside new highs in prices, as investors hedged policy and geopolitical uncertainty. Short-duration Treasuries remain a core refuge, supported by persistent issuance met with robust demand from money funds and liquidity-sensitive buyers.

This is not a wholesale flight from banks; it is a repricing of what “cash” means. The triad of security now reads as insured principal, daily liquidity, and issuer independence. The trade-offs are transparent: insured deposits cap yield but carry government backstop; money funds offer yield and liquidity but are market instruments; private custody of assets—whether vaults or keys—maximizes autonomy while shifting operational and legal risks to the holder.

The new custodians of cash are not abolishing the old ones; they are surrounding them. Banks still anchor payment finality and credit creation. Yet the custody of liquid wealth is migrating to a spectrum of structures—funds, wallets, and trust accounts—governed by different rules, fees, and failure modes. “Money-like” now spans FDIC insurance certificates, 2a‑7 fund shares, platform balances, and tokenized claims, each with distinct protections and points of fragility. As one BIS adviser put it, stablecoins do not replicate the settlement certainty of central bank money—singleness either exists or it does not.

The forward-looking imperative is clarity: labeling, supervision, and consumer understanding must catch up to the reality that an app balance can be a bank deposit, a prepaid claim, or a fund share. Policymakers are moving—FSOC on nonbanks, competition authorities on wallet access, and international bodies on tokenized cash—but investors should not wait for the fine print to settle. In a decentralized financial infrastructure, the essential question is no longer where money sits, but who ensures its integrity—and under what rules when stress arrives.

Deniss Slinkins,
Global Financial Journal