There’s clear value in taking time to plan for your team’s learning and your own.
You could easily make the case that credit unions’ situations are incredibly different from that of Silicon Valley Bank (and two others) that failed in mid-March. Credit unions are required to maintain a much higher level of capital than banks; are heavily restricted in what investments they can make; and are allowed to make far fewer business loans as a percentage of their total lending portfolio. Plus, more than 90% of credit union deposits are insured by the federal government, compared to only 50% of banks’ deposits.
Even so, credit unions can still learn a lot from the event. For example, I think better development of the bank’s leaders and team members could have improved the outcome.
Talent Development for Leaders and Monitors
According to coverage from the Wall Street Journal, Silicon Valley Bank, America’s 16th largest, went down because “management screwed up interest rates, underestimated customer withdrawals, hired the wrong people and failed to sell equity.”
Today’s financial institutions operate in a volatile, uncertain, complex and ambiguous marketplace, making leadership training and development ever more critical. Now is a good time to examine the executive development opportunities your credit union offers to its top staff so they will be as prepared as possible to move your organization forward in an unsteady environment.
And of course, at financial institutions, the C-suite doesn’t go it alone. Their boards set the organizational vision, approve the C-suite’s strategic plan and are charged with monitoring execution. So, it will be interesting to watch what lessons learned are yet to come out of the Silicon Valley Bank boardroom. In the meantime, ask yourself what you’ve done lately to teach your directors about good governance.
It's not so surprising that with the leadership misfiring, the bank had issues that could potentially have been righted by more learning. Let’s look at three key areas.
1. Financial Misses
Silicon Valley Bank took in big deposits (from venture capital infusions start-ups received and needed to park somewhere). How the bank invested its deposits might be the root of the failure. Silicon Valley Bank made investments that counted on interest rates staying low. And they didn’t. After depositors ran the bank, asking for their deposits back, a second problem was exposed: Silicon Valley Bank’s concentration of deposits over the insured limit of $250,000 was way too high. What learning might have helped decision-makers avoid these problems?
2. Communication Gaps
According to this report from the New York Times, the existing financial problems eventually led to Silicon Valley Bank needing “to sell some of its bonds at a loss and seek fresh capital to meet its obligations.”
“The bank may have been able to survive all of this,” the article says, “but when it explained to customers (badly) what had happened, some of those customers got worried that the bank was in trouble. Venture capital investors got spooked, and told their portfolio start-ups to withdraw any money they had sitting at S.V.B. Other customers saw that happening, and they panicked, too. Voilà, bank run.”
Analysis on Twitter by Lulu Cheng Meservy found that “the SVB press release about the sale made no mention of their reasons …, any further context, or any reassurance about the strength of the business otherwise. It was all numbers, no narrative.”
I can’t help but ask myself what learning might have helped the bank’s customer communications leaders do a better job.
3. Lending Misses
While loan program problems have not been cited as a key factor leading to the bank’s collapse, Silicon Valley Bank’s lending practices could well have contributed to the baseline level of concern customers were feeling about their financial institution.
The LA Times quotes investor Mark Suster, a client and managing partner at Upfront Ventures in Los Angeles, as saying Silicon Valley Bank was “more willing than others to focus on a start-up’s growth prospects rather than its current financial condition and to lend money so businesses can expand while awaiting the next round of venture capital funding.”
This flies in the face of business lending basics. Over and over, the instructors of our business lending school, Jim Devine and Bob Hogan will say, “If the cash don’t flow, the loan don’t go.”
The downfall of Silicon Valley Bank sends a clear message to credit unions starting or already running member business lending programs: best practices matter. Your program will be stronger if your team members learn these best practices, whether you’re just starting to do business lending or if you’re already out there.
Learning Gives You Choices
Obviously, learning isn’t a panacea. It can’t do away with bad actors nor directly make people more ethical. But learning does give good people more choices. When they have knowledge about a situation, a deeper understanding of the ins and outs of what their company does and what they do for it, and better knowledge of how to lead or manage, they have more options about how they act, including how they respond to whatever situation might present itself.
Fortunately, the Silicon Valley Bank failure doesn’t seem to point to an overall banking system failure. For me, it does point to the value of taking time to plan for your team’s learning and your own. What do you need to learn to keep your credit union safe and sound and to better communicate with your members? The free individual development plan you can download here may help.
Jerry Saalsaa is interim CEO of CUES. Since joining the team in 1997, he has led CUES’ finance, technology, human resources and strategy teams, including serving as VP/finance and technology and, most recently, as SVP/chief administrative officer. Saalsaa’s leadership has built a foundation that has enabled CUES to become a more sales- and market-driven organization. He holds a B.S. in accounting from Upper Iowa University, has earned certificates in negotiation from The Wharton School at the University of Pennsylvania and has attended all three segments of CUES’ CEO Institute.