SVB Collapse Has Companies Reviewing Financing, Cash Management Strategies

Silicon Valley Bank’s (SVB) failure killed the argument that midsize banks pose no systemic risk. 

Chief Financial Officers and corporate treasurers have gotten the message, and company executives are getting more concerned about where they can safely keep their company’s cash. 

This, as the biggest U.S. bank failure in more than 15 years increasingly brings corporate risk frameworks and working capital management strategies into focus. 

Charlie Youakim, CEO of payments company Sezzle, told PYMNTS in a conversation earlier this week that following the government takeover of SVB on March 10 and Signature Bank on Sunday (March 12), the conversations he’s taking part in with his board and finance department have shifted to “where businesses are banking next, and bank fundamentals.”

While large financial institutions holding more than $250 billion in customer deposits are subject to stringent regulatory oversight, about half of U.S. bank deposits reside in regional banks that are managed with a lighter regulatory touch. 

Read More: SVB Crisis Spurs Greater Call for Bank Regulations, New Investigations

Size and the Oversight That Comes With It Increasingly Seen as a Benefit

As reported by PYMNTS, U.S. Treasury Secretary Janet Yellen told lawmakers Thursday it was unlikely that other regional banks would receive the same treatment as SVB — having their uninsured deposits backstopped by the government — were they to fail. 

Businesses are now doing more diligence on what banks they are using to hold their deposits or partner, with many reacting to the rapid collapse of SVB by shifting their money to some of the largest U.S. banks. 

“We’re putting together a report of what [our] banks look like, their financial stability … because it’s not the case anymore that you can just trust your bank, trust that your money will be safe,” said Sezzle’s Youakim. 

Wall Street giants have raked in billions of dollars in new deposits over the past week. 

Still, Ingo Money’s Drew Edwards told PYMNTS on Tuesday that while many companies are going to ask, “Is my bank safe?” It’s not really about the size of the bank that matters. It’s more about the makeup and diversification of its customer base. Leaders should pick the best partners and not make broad reactive judgments around pure size.

The story of SVB’s failure is one of concentration — SVB was primarily a banker to tech startups, and tech startups turned out to be dangerous customers for a bank to build a business around. 

“[The SVB collapse] had a lot to do with their heavily concentrated customer base,” Edwards said, adding that if he had a billion dollars, he wouldn’t put it in just one place, “I can’t stand single points of failure anywhere in our value chain.”

Echoing that sentiment, Treasury Prime’s Chris Dean told PYMNTS’ Karen Webster Wednesday that banks (like any other business) have vulnerabilities — the trouble lies when clients put their all proverbial eggs in that single basket.

A Stress Test for the Evolving CFO Role

As PYMNTS previously wrote, startups — and FinTechs in particular — were navigating a different existential crisis well before SVB shuttered.

Now, a rising generation of CFOs are increasingly tailoring their spending to meet the new “new normal” of economic uncertainty and ongoing digital adoption by seeking to modernize business processes and reduce operating costs. 

They must add or re-emphasize banking relationship oversight and diligence to that growing to-do list. 

“I imagine many corporate treasurers are thinking today about having their bank deposits swept nightly to reduce even overnight counterparty risk,” BlackRock’s Larry Fink wrote in his annual letter to shareholders on Wednesday. 

“If something happens to a banking partner or supplier, it’s important to be still able to run your business,” Sezzle’s Youakim told PYMNTS, and added that what he sees as being crucial for future safety is making sure businesses “have redundancy for everything” for the sake of business continuity.  

Underscoring that importance is that, as reported by PYMNTS, both SVB and Signature Bank passed audits performed by KPMG just a handful of days before their collapse. 

If a big-four accountant can sign off on a bill of clean financial health, it means that internal finance leaders must be even more hyper-vigilant about their organization’s own banking relationships and risk frameworks.