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IS YOUR BUSINESS READY FOR: BANK INDUSTRY FAILURES?

By Tonya Poindexter White

No financial institution is immune to an economic crisis. This was evident with the recent collapse of Silicon Valley Bank (SVB). The effects of this collapse rippled through a multitude of small businesses that relied on this institution for payroll, operations, and other pertinent business expenditures. Many of the businesses that were patrons of SVB did not see this coming and found themselves at a loss before the government stepped in to assist. However, there were many companies that were prepared for such a disaster and had a plan in place for a situation such as this.

Preparing for financial failures that are beyond a business’s control can be difficult, but it is possible. Diversification is key to always being prepared for any bank’s unforeseen financial failure. Maintaining relationships with multiple banks, depending on the size of the cash balance, is advisable. To manage risk, it is best to maintain bank relationships across a mix of large and regional banks.

The Wall Street Journal also advises the following:

· Add beneficiaries to your accounts: Designating specific people or nonprofit organizations to inherit funds after the account owner’s death is another way to increase protection. FDIC insurance generally will cover up to $250,000 in deposits for each unique beneficiary. For example, a trust account with five beneficiaries would be insured up to $1.25 million.

· Deposit swapping: One way to manage the multiple accounts necessary to increase FDIC coverage is to have your bank do it for you. Using a network allows customers to get the insurance benefit of having multiple banks while dealing with only one bank. Deposit swapping networks work with multiple banks to separate large deposits into amounts below the federal insurance limit and can protect balances up to $150 million.

· Credit unions: Credit unions are nonprofit financial institutions that are an alternative to commercial banks. These accounts aren’t FDIC insured, but they have their own form of federally backed deposit coverage through the National Credit Union Share Insurance Fund, with the same $250,000 limit.

· Bonds: Though U.S. Treasurys aren’t covered by FDIC insurance, they are backed by the full faith and credit of the federal government. In other words, buying U.S. bonds is a low-risk alternative to stashing money in a bank.

NVBCC member FVCbank was contacted to learn how they work to prevent a similar event from happening to their institution. FVCbank Chairman and CEO David Pijor provided the following comments:

“Unlike SVB, our bank does not hold a high percentage of government bonds. FVCbank has a business model that is significantly different from SVB. FVCbank has no crypto market exposure or tech company financing. We adhere to a conservative operating philosophy and have a diversified portfolio of deposits, which we deploy in loans to local businesses. We are well-capitalized, maintain a sound credit discipline, and abide by strict regulatory guidelines to ensure the safety and security of our customer deposits.”

Ultimately, financial institutions’ failures will occur. While this can be frightening for business owners and individuals alike, the most important thing to remember is, DO NOT PANIC. Withdrawing money from banks that were not affected by the collapse will further destroy the economy and cause further economic challenges, which, if not managed correctly, could lead to catastrophic results across the country. It is best to maintain a level head and always keep liquid assets in case of emergencies.

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