By Michael Fox
“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:
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.