Credit Union & Fintech Opportunity in Silicon Valley Bank Failure
Silicon Valley Bank will go down in history for a number of reasons. It was the first social media-fueled bank run.
Per CBS News, one tweet read: "Run on the bank!" entrepreneur Kim Dotcom posted in a March 12 tweet that was viewed by 2.4 million people and retweeted nearly 3,500 times. "Get your money out. First thing on Monday. US banks are in trouble. FED emergency meeting. Deposits may get locked. Possible withdrawal limits. When markets collapse your bank deposits that US banks use to invest may be in danger. Cash is king. Get out now!"
The chatter between fintech leaders on Twitter and Slack and the like moved depositors to yank their money out - and fast. $40 million was withdrawn in a matter of hours, according to The Guardian. Ironically, the bank that banked fintechs and venture capitalists helped them to build the tech so consumers and businesses move money faster.
But as James Green, Illuminate Advisory co-founder and managing partner/co-founder of the Resilience Think Tank, explains in this highlight reel, that's not the only thing Silicon Valley Bank did to contribute to its own demise. He shares that the bank issued a press release the week of March 10, basically stating the bank didn't have liquidity issues - so what's the first thing people are going to think?
Yup.
Watch the highlights at right or the full interview on YouTube. We talked vendor risk management, fintech partnerships and investments for credit unions, and Glass-Steagall. It's riveting.
Chris Otey, CU 2.0 chief revenue officer and chairman for South Bay Credit Union, provides interesting insights and a unique perspective on Silicon Valley Bank's demise. He was attending Fintech Meetup when I caught up with him, and he described that weekend as 'brutal.' Chris shared that his company discovered it was being paid by different fintechs through SVB. He shares an interesting story about a friend's experience, the windfall for credit unions and much more. This video hits the highlights or you can view the complete interview right here.
One of the issues that's infuriating to many of us in the credit union market is the cleanup that has to be done. Many credit union leaders and community banks were left to assure customers and members that deposits were in fact insured with them - unlike the 93.8% of uninsured deposits at SVB, according to S&P Global, which was the most of any bank with more than $50B in assets.
On the flip side, Bauer Financial shows credit unions at $165B in uninsured shares against $1.689T insured shares, according to the NCUA as of Q2 2022, or 9.8% uninsured shares. It leads one to ponder the many ethically questionable activities related to the SVB scenario, from the VCs requiring the fintechs to use SVB to the execs who dumped more than $80 million in stocks over the last two years, including $3.6M sold by the CEO as recently as Feb. 27, per CNBC.
Credit unions' democratic, not-for-profit structure means we don't have to chase a quick buck, and credit unions tend not to attract the types that would attempt these sorts of behavior. Credit union people are not perfect, but people who are chasing the quick buck aren't likely going to find it in credit unions, which is why they largely stay away.
That said, SVB was pursuing an ESG - Environmental, Social, Governance - model, even if it was light on the G. Joseph Winn, president at GreenProfit Solutions and also a marine biologist, complimented credit unions on their two-thirds effort on the triple bottom line, which is people, planet and prosperity. Joe, aka the Credit Union Geek, applauded credit unions for their emphasis on people and creating prosperity, and shared that he hopes they'll dig more deeply into the environmental work that SVB was trying to support, however misguided.
You probably know the drill by now: Abridged version on this page and the full version of the interview is right here.
Talking with folks about this issue, both formally and informally, here's what I think credit unions need to take away:
Prosperity means everyone wins. The connotation is much broader than greed, which is why they mean similar things, but one leaves a bad taste in your mouth.
Communication must be strategic. The person who thought saying, 'nothing to see here,' was a good idea when it was a bald-faced lie is an idiot. No. 1 rule of PR is always be honest.
Instead of ragging on SVB, ask yourself why so many fintechs went there. Yes, the VCs pushed them there, but what alternatives did they have? Not a heck of a lot of credit unions. Take baby steps. Take risk or risk losing opportunities and relevance.