On March 10, Silicon Valley Bank (approximately $209B of assets) failed, followed by the March 13 failure of Signature Bank of New York (which had $110B of assets at the end of 2022). Banks have been stressed by increasing interest rates, fed rate tightening and economic uncertainty. What should a family business owner be doing in the light of these actions? Here are a few things to consider:

1)     FDIC insurance covers $250,000 for each depositor, per bank, per account ownership category. This covers most business accounts as well as personal accounts. There are various permutations of this coverage, too in depth to describe here. Most of the time, the FDIC convinces another bank to take over the deposits of the failed bank and depositors don’t lose anything – even for balances over the FDIC limits. However, there have been instances where an acquirer was not found and depositors lost amounts in excess of the limits.

2)     If you are keeping cash balances over that amount, think about how those balances are stored or invested. The Securities Investor Protection Corporation insures brokerage accounts with some larger limits than deposit accounts, so perhaps you could consider that as an option. This could require careful discussions with your advisers and bankers.

3)     Quite a few businesses we’ve worked with over the years have told us they use two banks – a large one that has better technology and lending capacity and a smaller one that provides better customer service. While I personally like the ease of seeing accounts in a single login at one institution, I understand some businesses deciding to spread their risk by using a second bank. If one goes down, and you have online or other difficulties for a few days, you have an alternative to continue your business operations.

4)     One of the lessons here is to evaluate all of the vendors, customers and partners that you rely upon. We should be looking at risks tied to any key or large customer or partner we work with. 

We are still in the early days of this news cycle. It’s unfortunate that most of us don’t think about the various risks we face until there is a crisis, but this can be a good prodding to reconsider our risks and their implications. It’s okay to understand a risk and decide to live with it; what’s not okay is having a large risk that you didn’t know existed.

Charlie Carr, CFP^® is president of Big Canyon Advisors LLC, which advises family businesses and family offices (bigcanyonadvisors.com).