The recent failure of Silicon Valley bank was a galvanizing moment for members of the CFO Leadership Council (CFOLC), a professional association for financial leaders. In less than a week, the CFOLC held three emergency sessions where members discussed challenges, offered strategies and solutions, and shared contacts and real-time updates on changes in the banking community.
CFOs have faced so many crises in recent years, including evolving workplace dynamics, inflation, supply chain disruptions, economic uncertainty, talent shortages and more. The SVB collapse created the greatest concern for CFOLC members since Covid, despite the fact that fewer than 10 percent of our members are Silicon Valley Bank clients.
CFOLC members were in constant touch with each other almost from the moment they learned that the federal government would be taking over SVB. We held our first meeting approximately 90 minutes after the news broke on Friday, March 10. Some 250 members attended this virtual session, which lasted two hours. The group reconvened on Monday, in what was the most well-attended session in the organization’s 17-year history. A final meeting was held on Thursday, when things were starting to get back to normal.
In between, I was in constant touch with our members. I received dozens of texts when Treasury Secretary Janet Yellen announced that SVB deposits would be protected. I don’t think anyone was surprised by this decision, but the decisiveness and speed with which the decision was announced was unexpected, causing a strange blend of euphoria and relief amongst our members.
From our three emergency sessions, as well as dozens of emails, texts and conversations, these are the most important lessons I learned.
A CFO cannot overcommunicate. CFOs have many, many stakeholders who value CFOs for their clear and insightful communications style. When SVB collapsed, employees were legitimately concerned about when they would receive their next paycheck. Suppliers were also concerned if 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. I did a survey of CFOLC members a week after the crisis, and 31 percent 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, JPMorgan Chase and Wells Fargo were mentioned as institutions that members would be sending their money to, partly because they are deemed “too big to fail” and CFOs feel a high confidence in their stability if this becomes a full-blown 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 noted 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 is critical. 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 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.