Unless you have been living in the virtual world for the last week, you know  the Silicon Valley Bank (SVB) has collapsed. This bank made venture capital loans to startup companies in the tech industry.  What can Not-For-Profit managers learn from this episode?

 During the last banking crisis I was serving as the CFO of a large NFP. The executive management arrived at the mistaken conclusion  the banking industry was going to collapse. Despite my strenuous objections they  required me to spread our disposable cash and a large portion of our investment portfolio into low yielding certificates of deposit at multiple banks.  All of the CDs had to be under $250,000, the guarantee limit of the FDIC.  We had to employ brokers to spread the deposits over many banks.   Needless to say, this was an overreaction.  Not only did we spend a lot of time on the project, but we also lost a lot of return on our investments and paid  increased brokerage fees. The banking system did not melt down and we looked a little foolish.  I wrote an interesting article on that topic, which you can find here

Nevertheless, there was a valid underlying concern.There is a legal limit as to what the FDIC is required to guarantee.  It seems in this case the depositors with balances above the guarantee limit will be made whole, but there is no guarantee this will happen with future bank failures. It might take some time for them to access their funds.  If your organization  does have balances above the limit at a bank and you need the funds, your organization should consider opening another bank account to make sure it can continue to operate in case of a bank failure. 

The risk of bank failure is not the only concern with using one bank either.  A temporary halt in a bank’s operation can be a problem as well.  During the infamous 9/11 crises, the bank my company was using was located in Jersey City NJ, directly across from the World Trade Center.  After the attack the bank was closed for days. We could not access our funds and payroll was looming.  This would have been disastrous for the company. We were a toy manufacturer and  were in the middle of the heaviest shipping season. Any disruption would have seriously cut into our earnings.   Fortunately, I was able to meet the company’s obligations including payroll because I opened a second bank account  where I kept sufficient funds to operate the company for a period of time.  You may say this was a” belt and suspenders” approach to banking and what are the odds such a thing could happen again? I would answer that question with another question.  In today’s environment who wants to take such a risk?  Also, a little competition is good. Having a second banking relationship is not necessarily a bad thing. 

In short, do not rely on the FDIC deposit guarantee.  If you have more than $250,000 in place, move some of the deposits to another bank.  You not only have a risk of losing the funds but you may not be able to access them for a while.  Either could be a catastrophe for your organization.

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