The sudden failure of Silicon Valley Bank sent a clear signal through the startup and venture ecosystems: banking risks can hit fast, and liquidity management matters more than ever.
Beyond headlines, the episode reshaped how founders, CFOs, and treasurers think about deposits, interest-rate exposure, and contingency planning.
What happened, at a high level
A concentrated depositor base combined with a large portfolio of long-duration securities left the bank vulnerable when interest rates moved and customers sought quick access to cash. Rapid outflows triggered a classic asset-liability mismatch: assets that had lost market value weren’t liquid enough to cover sudden withdrawals without selling at losses.
The market and policy response aimed to stop contagion and restore confidence, but the event exposed weaknesses that businesses and banks can learn from.
Key takeaways for startups and depositors
– Diversify deposit exposure: Keep cash across multiple insured institutions or use sweep arrangements that move balances into insured accounts or money market funds. Relying on a single bank creates concentration risk.
– Know insurance limits and protections: FDIC insurance covers certain dollar limits per depositor, per bank, per ownership category. Structure accounts and entities thoughtfully to maximize coverage.
– Prioritize runway and liquidity: Maintain a conservative cash runway and stress-test scenarios where funding or revenue slows. A six-to-twelve month runway may be prudent depending on burn rate and market access.
– Use short-duration instruments: For non-operating cash, consider short-term Treasuries, treasury bills, or high-quality money market funds that reduce interest-rate and liquidity risk compared with long-duration securities held on a bank’s balance sheet.
– Establish banking contingency plans: Pre-arrange relationships with alternative banks and fintechs, and document procedures for rapid transfers and signatory access.
– Communicate with stakeholders: Transparent updates to investors, advisors, and the board help coordinate support and avoid panic withdrawals.
Actions for finance teams
– Run stress scenarios that model deposit runs, rising rates, and counterparty limits.
– Implement multi-signatory and role-based access controls to prevent single points of failure in treasury operations.
– Negotiate committed lines of credit or alternative financing before it’s needed; open relationships are easier to secure under stable conditions.
– Consider professional cash management platforms or treasury services that offer daily liquidity and sweep options.
What this means for banks and regulators
Regulators and banking executives have leaned toward stronger liquidity oversight, more frequent stress testing, and clearer disclosure around interest-rate risk. Banks with specialized client bases are reassessing concentration risk and contingency funding plans. For clients, that may translate into tighter underwriting but also more resilient partner banks.
A resilient approach to cash management
The episode around Silicon Valley Bank is a reminder that banking risk can be operational as much as financial.
Startups and growing companies should treat treasury management as a strategic function: diversify where deposits sit, shorten the duration of liquid investments, maintain clear contingency plans, and ensure robust governance over cash movements. These practical steps reduce vulnerability to shocks and give leadership time to respond deliberately rather than reactively.