I spoke to dozens of CFOs about what they learned from the collapse of the Silicon Valley Bank. There were dozens of lessons learned, and the five below are the ones that came up most often in conversations with these financial leaders.
A CFO Cannot Overcommunicate. CFOs have a diverse set of stakeholders who value CFOs for their clear and insightful communications style. When SVB collapsed, employees were legitimately concerned on when they would receive their next paycheck. Suppliers were also concerned of the company would be able to honor its obligations to them. Investors and board members needed to understand the short-term viability of their companies, and customers share similar concerns. The CFO must communicate with all these parties in a proactive and straight-forward manner.
Diversification is Critical. The $250,000 FDIC insurance limit is not sufficient for most companies, so spreading money at multiple financial institutions is critical. This is especially true given Secretary Yellen’s declaration that not all bank deposits will be protected in future bank failures. If you have all or most of your funds in a bank that enters receivership, it can impede growth, disrupt day-to-day operations (like payroll), and cause a loss of confidence in your constituents. A week after the crisis, I conducted a survey of CFOs, and 31% still have their funds at only one bank. Presumably, most are actively looking to change this.
Bigger is Better. I hate to categorize a financial crisis into winners and losers, but it’s clear that large financial institutions are likely to reap rewards for their financial stability. Bank of America, JP Morgan Chase and Wells Fargo were mentioned as institutions that members would be sending their money, partly because they are deemed “too big to fail” and CFOs feel a high confidence in their stability if this becomes a full-time banking crisis. As CFOs are reminded that preservation of capital is a critical duty, this trend feels likely to continue.
But Speed Matters, Too. Many CFOs view smaller banks as having superior service than larger ones. While there is certainly no consensus on that point, CFOs still value a bank that can act quickly and are reaching out to them for that reason, despite the security associated with the largest banks. Several also cited that they moved their money to a community bank simply because it was easier to do so during the crisis. But while speed is critical, doing proper due diligence on your new bank is as well. Don’t make a mistake just because you are in a hurry to do something.
The Right Team Matters. In dealing with crises, CFOs must create a business model that is fast and flexible. It’s critical that CFOs invest in their team, not only in areas of recruiting and retention, but staff development. Investing in your team to make ensure they have the right expertise, skills and even self-confidence to respond to a crisis is paramount. During an economic slowdown, it’s very tempting to stop these investments, but doing so could be catastrophic.