“Banking is a confidence game.” So said Andrew Ross Sorkin in his initial post-mortem on covering the stunning 48-hour period during which Silicon Valley Bank (SVB) went from being one of the most influential lenders to the technology and healthcare start-ups over the past 40 years, to collapse, closure and receivership under control of FDIC.
At the end of each banking day, there is not a financial institution in the world that has adequate liquid reserves if most of its customers decided they wanted their money back at the same time. Successfully convincing people to put their money into a bank requires them to accept something that is not technically accurate as a matter of fact – they can always get it back whenever they want.
Aside from recognizing the statistical unlikelihood of customers all wanting their money at the same time, the basis on which customers accept this dynamic is “trust” (in fact, the very term used for certain types of depository institutions). Trust is an illusory concept and it takes many forms. The developments at SVB also illustrate how fragile it can be – relatively complete, total and unquestioned for decades, only to completely disappear in a matter of hours. Warren Buffet famously said, “It takes 20 years to build a reputation, but only 5 minutes to ruin it.” Since reputations are grounded in trust, the parallel is clear.
Maintaining confidence during periods of distress is the art of crisis communication and no instance represents this dynamic better than a “run on a bank,” where the very goal is to manage a movement driven by fear and emotion, recognizing that the actions you take to manage it could actually create more fear and emotion.
Many have pointed to a range of failures that led to the rapid demise of Silicon Valley Bank: rising interest rates that led to massive paper losses, misguided investment decisions regarding debt maturities, extensive exposure to customer withdrawals within the startup technology and healthcare communities due to the difficult capital raising environment, and more. But almost all have recognized that while, ultimately, effective communication might not have saved the bank (though it is quite possible it could have!), the mistakes it made in the area of communication seem to have eliminated any chance the institution may have had at survival.
So where did they go wrong and what can we learn:
- SVB failed to recognize the perilous nature of its predicament. Whether it was arrogance or dismissiveness based on its 40-year history of operating at the highest levels of finance, it just does not seem to have occurred to management that the situation could spiral out of control. We are all loathe to confront our own weaknesses, but the strength of any organization lies in its ability to assume the worst, while it is planning for the best. As the saying goes, defining the problem is half way to the solution, but somebody failed to sound the alarm.
- SVB failed to acknowledge the context in which it was operating. The failure of Silvergate Bank at the very same time SVB was going to market with news of its capital raising and asset sale plans was too obvious to miss. The financial community moves in packs and closely monitors for trends with the sole goal of getting out before it’s too late (“sell on the rumor,” right?). Perhaps Silvergate’s concentration in lending to the digital asset industry caused SVB to believe it wasn’t a comparable financial institution. But the Silvergate headlines were “Bank Fails.” Who they lend to requires reading the full story. When things are happening in real time, and billions of dollars are at stake, most concerned market participants focus on the headlines first.
- SVB took a very rigid, by-the-book, legal and regulatorily driven approach to communication. The majority of its commentary was provided via SEC filings, not their customers’ go-to source for news. The company’s press release was short on detail about why it was taking steps to improve its balance sheet and the Company initially refrained from making additional public comments. There is no doubt that public company disclosure rules are important, but failure to recognize the reality that if you don’t communicate thoroughly and strategically with those who control your fate (all of which could have easily been done in a regulatorily compliant, manner, by the way) you won’t long have a bank to be regulated!
- SVB failed to meet is stakeholders where they are. The irony is not lost that many of SVB’s customers are responsible for building and maintaining the social networks that drive much of communication today, and they personally derive the majority of their news and information from that ecosystem. In fact, some are going so far as to refer to the “first Twitter-fueled bank run.” But SVB was largely absent from this arena when it mattered most. Good communication is always developed backward from the perspective of the stakeholder: What are they thinking, what do they need to hear, and how, when and where do I best reach them? Don’t make your constituents have to work to find the information you need them to have. Put it everywhere they already look.
- SVB failed not only in the quantity, timing and location of its communication, but it completely whiffed on the quality. It’s messaging betrayed a lack of understanding or willingness to accept the reality of the situation and the needs of its stakeholders during a time of distress. Confidence and trust are earned through tangible and substantive demonstrations of fact. This is a time to “show,” not “tell.” SVB initially failed to provide adequate commentary around its capital raising and asset sale plans or to provide sufficiently compelling indications of financial stability. But it compounded that mistake by fueling the emotional response of its customers by telling them to “stay calm” – the surest way to get someone to panic! And panic they did, to the tune of $48 billion of withdrawals in one day.
It is cliché at this point to say the SVB should have had a communications plan in place. There is no question about that. And they should have conducted periodic simulations to test that plan and their team’s response to it, because only under fire (even a simulated fire) can you know how you will actually respond. But even the best plans and the most realistic simulations fall short in the absence of a leadership team and corporate culture that is conscious of its own frailty and the unyielding priority of taking care of its customers and other stakeholders by seeing them and their needs through their lens and communicating accordingly.
Silicon Valley Bank seems to have had the right intentions and responded in a way that it felt was “prudent,” but it was not sufficient. There was a fundamental disconnect between the needs of its stakeholders and what the bank chose to provide them. As communications professionals, it is not sufficient to simply be owners of what our organization or client says. It is critical that we also be the primary owners and powerful internal advocates for what their key stakeholders need to hear. Again, banking is a confidence game. SVB’s customers sought reassurance from the bank’s leadership and instead decided to call their bluff.
