Applying the lessons of the SVB and Signature Bank failures: Steps for boards and management

The near-simultaneous failures of Silicon Valley Bank and Signature Bank in March 2023 exposed material liquidity and counterparty credit risks that rippled across the corporate sector. SVB was closed by the California Department of Financial Protection and Innovation on March 10, 2023, with the FDIC assuming receivership responsibilities. Signature Bank faced identical regulatory closure by New York authorities two days later on March 12. In an unprecedented coordinated response, the Federal Reserve, FDIC, and Treasury Department jointly announced an emergency backstop program on March 12 guaranteeing all deposits at both institutions—including amounts exceeding FDIC insurance limits—signaling systemic risk concerns at the regulatory level.

To maintain operational continuity, the FDIC established Silicon Valley Bridge Bank and Signature Bridge Bank, transferring all insured and uninsured customer deposits to these newly created entities. By March 14, 2023, all customers of the predecessor banks were automatically transitioned to the bridge banks, which resumed normal banking hours and operations. This regulatory intervention stabilized immediate deposit access but left companies exposed to questions about their broader banking relationships and cash management vulnerability.

In response, corporate boards and management should undertake a systematic review of five key operational areas. First, investment policies governing liquid assets should be revised to mandate account diversification and protective measures against sudden market or credit shifts, with explicit attention to products that insulate cash from deposit bank credit risk. Second, all existing cash management services—including sweep allocations, customer deposit instructions, and auto-debit arrangements—require detailed audit and potential reconfiguration based on service availability and banking partner stability. Third, loan documents should be examined for affirmative covenants that restrict the company's ability to establish accounts at alternative financial institutions; recent events may create negotiating leverage to modify restrictive terms. Fourth, companies holding letters of credit as beneficiaries should verify contractual rights to demand replacement instruments or cash collateral from alternate issuers. Finally, management should establish contingency liquidity structures, such as pre-arranged bridge facilities or equity commitments, to address future crises without operational disruption.

Insured cash sweep programs merit particular attention, as these products automatically sweep excess deposits into protected instruments not subject to the deposit bank's credit risk. Board-level governance and documentation of these decisions through formal minutes and audit committee oversight are critical to demonstrating appropriate fiduciary attention and risk management in an environment where banking system vulnerabilities have been demonstrated.