How Strategic Are Your Banking Relationships?
Responding to the Banking Crisis of 2023
Unfortunately, sometimes things happen in the world that are monumental enough that you remember where you were when it happened. For some of us, that will be where we were when the FDIC took over Silicon Valley Bank “SVB”.
I have worked with SVB since back in the late 2000s at Interactive Intelligence. Back then, they were one of the only banks that really wanted to understand and support technology companies. Ironically, we used them to hedge our foreign currency risk and to be a backup to our primary bank, JPMorgan Chase.
Fast forward 20 years, and I co-founded a fractional CFO services firm called LiftBridge CXO. Our clients are mostly startups and scaleups within the technology industry. It wasn’t long until I ran into my friends at SVB. They provided banking and lending to several of our clients.
Back to “where were you when you first heard the news that SVB failed”, I was ironically on a call with SVB discussing one of my clients. We were chatting away, when suddenly, our SVB friend looked dumbfounded. Finally, he told us he had to share something with us. The link he put in our Zoom chat was to the press release announcing that the FDIC had taken over Silicon Valley Bank. He quickly got off the call, even as we had many questions like, can we still access our money, do we still have to make debt payments, what does that mean for you?
As we all know, those answers came out over the following weeks. But the chaos that ensued that weekend, and into Monday to try to get answers and try to get on the SVB platform to transfer money for payroll, was some of the craziest of my life. There are a few hero stories of companies that stepped up to help those impacted either by offering to lend money or quickly opening alternative bank accounts. I love witnessing the good in people.
No matter if you were directly or indirectly impacted by SVB crisis, everyone in the business world has had to pause to consider their own banking relationships. We now live in a world where we know a run on a larger, well-known bank can happen and the limits of FDIC insurance can come into play. It wasn’t even an isolated situation as more banks were impacted. So how do we all move on from this. Is it going to be like other situations where everyone is fired up for a few weeks, but then things return to “normal” and everyone stays in the status quo?
LiftBridge CXO is a fractional CFO services firm, meaning we provide strategic finance work for our clients. In that vein, we have an opinion on what our clients should be doing. Two simple, but impactful things we recommend are:
Diversify your banking relationships. The days of having (or even being mandated to have) one banking relationship are over. We have now experienced the consequences of this. I personally felt the panic of not being able to get any money out of the bank to pay employees. Maintain a primary banking relationship but keep money at a secondary bank to fund at least one month of payroll.
Talk to your Board of Directors to discuss banking strategies. My observation is that many people of have strong opinions on this subject. Some believe that companies should move all their money to a megabank, or a large global bank based in the U.S. Surely those can’t fail. Others believe that if everyone pulls money from smaller regional banks, we could have a larger crisis on our hands. Others advocate for ISC, or IntraFI Cash Service that can ensure funds over the $250,000 FDIC limit through using a network of banks with one single point of banking contact. The bottom line is that each company should access the risk of their banking relationship and determine the strategy that is right for them. For example, sometimes smaller banks will work more easily with you in times of crisis (can you say PPP loans?).
No matter whether you remember where you were when SVB collapsed or not, you need to put some thought into your banking relationship, determine the risks and rewards of your strategy and discuss it with your Board of Directors. It is the prudent thing to do.
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