While the full story of Signature Bank’s collapse is yet to be told, the lessons of Silicon Valley Bank’s failure are already clear. For PR professionals, those lessons include making sure that we have a seat at the table of advising management on understanding the reputational and business impact of governance decisions.
The fact that the CEO of SVB pushed for a Trump-era bill that reduced regulatory scrutiny of regional banks is perhaps not the most egregious aspect of its failures. It’s that SVB seemed to forget the cardinal rule of commercial banking, namely, that time is the enemy of promise.
Banks take deposits then seek to invest the money profitably. And, yes, return customer money when it’s asked for. What SVB did was invest in a portfolio of long-term government securities paying an average of less than 200 basis points. Rates rose as the Fed sought to tackle inflation. It wasn’t hard to see the rate hikes coming. The current bout of inflation started in 2020. Spiking rates is the only tool the Fed has to fight rising prices.
Then the IPO market for start-ups—SVB’s core customer segment—dried up. Private market funding got expensive for them, so SVB’s customers had to withdraw money for operational liquidity.
SVB’s long-term securities became suddenly mismatched to its customers’ immediate needs: the promise of those returns ran smack into the present moment’s urgency. It sold the portfolio at a loss, then also scrambled to sell its common and preferred stock to raise money. But by then it was all but over. The run on the bank was on.
Ultimately, these are all failures of governance. FTX’s bankruptcy was also the result of a failure of governance. In FTX’s case, there really wasn’t any. It operated essentially without a board of directors and was riddled with conflicts of interest between its two core entities. Nevertheless, dozens of institutional investors threw billions of dollars at its CEO.
Each generation on Wall Street (and in Silicon Valley) finds a way to make the same mistakes as the prior ones in its own unique way. And each generation finds a new way to conjure up get-rich-fast ideas that are akin to a form of frenzied financial alchemy. As we turned into the 1980s, it was the savings and loan bank crisis, also triggered by a rise in rates. As we moved through that decade it was junk bonds. In the 1990s, the dot.com boom, and bust. In the 2000s, mortgage-backed securities. Then the Great Financial Crisis and some of the biggest bank failures since the 1930s.
The through line in all those booms and busts was believing there would always be a new way to make money, and a lot of it, but rarely with a clear grasp of the material risks, present and prospective. This is a uniquely American phenomenon, almost a kind of cultural psychosis, and we are only in the early chapters of how this is likely to be repeated with crypto. As Danny Moses, made famous by predicting the 2008 crisis in the book “The Big Short” said in the New York Times over the weekend, “There’s no crypto regulator insuring accounts for $250,000.”
PR’s role in these cases has to be the opposite of the thinking that created the problems. The perspective, or “lens”, of PR counsel is worth applying:
PR counsel is central to risk management.
As rates rose, it wasn’t hard to see where things would go for SVB. PR executives are part of the risk management discussion in any organization. This is a management advisory role and flagging, via scenario analysis, what could happen is central to providing advice that doesn’t just protect the corporate reputation but the very life of the organization. Management should see PR counsel as contributing to good governance.
What the CEO does, or doesn’t do, is always important.
SVB’s CEO had no choice but to make a public statement to try and calm its customers. Of course, in one sense whenever any CEO needs to do that it’s usually too late. But the fact that according to news reports he sold $3.6 million of company stock 11 days before regulators took over the bank is worse than bad optics. While he apparently was compliant with SEC Rule 10b5-1 and thus may avoid suspicions of insider trading, he will still have to answer questions about what he knew and when he knew it. While compliant, the act will create a lingering reputational headache and the PR advice he needs will become even more important.
How things can pile on.
The context in which communications decisions and steps are made and taken are important. They impact outcomes. SVB had no choice but to disclose its financial losses but it did so on the back of Silvergate Capital’s crypto-driven problems and self-liquidation. That accelerated concerns about SVB’s problems. There’s no perfect PR plan in these circumstances, but it’s a lesson in how governance failures can compound with unlucky timing—without those failures it is possible SVB’s problems would have been not just smaller in scale but uncoupled in people’s minds from other banks’ difficulties.
Experienced communications executives should never hesitate to convey what they know now, that’s in the best interests of the client to hear, because, after all, it is based on what we all know has happened before.
Montieth Illingworth is CEO and global managing partner of Montieth & Company.
The article was originally published in O’Dwyers.