The FDIC takeover of Santa Clara, Calif.-based Silicon Valley Bank (SVB), which news reports described as the worst bank failure since 2008 and the second worst in U.S. history, had quite a few of your peers weighing in about it on LinkedIn.
Unless you’re in the tech sector, you might not have heard of SVB until last week. The short version of what happened is the bank was holding a really high number of Treasury and other government bonds. As interest rates rose, the bonds in SVB’s portfolio became less valuable. When the financial institution disclosed it was selling assets to raise capital, investor and customer panic ensued, driving a crippling bank run.
The dramatic turn of events had ripple effects across the banking industry, including the collapse of New York City-based Signature Bank, which was reportedly driven by its reliance on cryptocurrency.
Meanwhile, a joint statement issued by the U.S. Treasury Department, Federal Reserve and FDIC said that “the U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry.”
Although not mentioned by name, that sounds like a reference to the Dodd-Frank Act of 2010, which imposed certain capital and liquidity requirements on banks and subjected the largest banks to a special set of rules, including annual stress tests.
It should automatically get you wondering, “What if a mess like this happens to my bank?”
Assess your bank failure risk
To protect your organization from the potentially catastrophic impact of a bank failure, you need a status report ASAP from your business’s banking partners that includes the following info:
- The primary differences between your banking partner and SVB
- Your banking partner’s capital ratios and whether it needs to, or plans to, raise additional capital in light of recent bank failures
- What its plans are to protect cash, and
- An up-to-date summary of its business model, assets, portfolios, Q4 2022 net interest margin, and available funding sources.
If you sense a lack of transparency, or unwillingness to share these important details, it may be time to shop around for another financial institution to do business with.
And because employees value proactive communication in situations like this, it also may be a good idea to share with them where your company banks and what its plan of action is to not end up like SVB.