The shock around Silicon Valley Bank reshaped how startups, VCs, and corporate treasuries think about banking risk.
Beyond headlines, the practical lessons are straightforward: concentrated deposits and interest-rate exposure can create sudden liquidity stress, and preparation is now a must-have for any organization holding significant cash. Here’s how to turn that wake-up call into a stronger treasury strategy.
What went wrong (high level)
– Deposit concentration: A large share of deposits came from a single customer type—venture-backed companies with similar cash flows—so withdrawals clustered and escalated quickly.
– Interest-rate and duration risk: Long-duration securities in the investment portfolio lost value as rates rose, creating unrealized losses that tightened capital flexibility when liquidity was strained.
– Liquidity mismatch: Short-term liabilities (deposits) were funded by longer-duration assets, leaving little buffer when many depositors wanted cash at once.
Practical steps every startup and treasury should take
– Diversify deposit locations: Avoid keeping large balances at one institution. Spread cash across several FDIC-insured banks, and use sweep services to move excess into insured or low-risk vehicles.
– Use deposit-insurance tools: Services like Insured Cash Sweep (ICS) or CDARS can distribute funds across multiple banks while preserving FDIC insurance for balances above standard limits.
– Know the FDIC limit: Standard insurance remains a baseline protection—structure accounts with that in mind and document distribution strategies.
– Maintain runway and access to credit: Target a conservative cash runway that reflects business risk—many companies now aim for multiple months of operating expenses on hand. Secure committed lines of credit or venture debt as an emergency liquidity backstop.
– Monitor bank health proactively: Ask your banking partners about asset composition, duration risk, and contingency plans. Review publicly available regulatory filings and watch for shifts in deposit mix or reliance on brokered deposits.
– Use sweep and treasury-management products wisely: Sweep accounts into government money market funds or short-term treasuries reduce counterparty concentration, but verify liquidity and counterparty exposure.
– Negotiate for operational resilience: Build payroll and vendor payment contingencies—multiple ACH routes, backup signers, and alternative payment processors reduce operational disruption if a banking relationship falters.
– Board-level communication and stress tests: Regularly present cash scenarios and crisis plans to your board. Run stress tests that simulate withdrawal spikes and funding freezes so you know the trigger points and responses.
– Consider bank type and depositor base: National banks with diversified deposit bases can behave differently than niche or industry-concentrated banks. Balance relationship benefits against concentration risk.
– Keep stakeholder lines open: If liquidity tightens, communicate early with investors and key vendors. Prompt transparency often helps unlock support before a situation becomes critical.
A practical checklist to implement this week
– Map all cash balances by bank and ownership structure.
– Confirm FDIC coverage and explore ICS/CDARS if balances exceed limits.
– Contact your primary bank for a discussion on liquidity and contingency options.
– Evaluate credit lines and investigate quick-access alternatives.
– Update your cash-runway model and run a 30/60/90-day stress scenario.
The banking landscape will continue to evolve, but resilient treasury practices are enduring. By diversifying exposures, improving transparency with stakeholders, and treating liquidity like a strategic asset, companies can reduce vulnerability to future shocks and keep focus on growth rather than firefighting.