SVB’s depositors learned their bank was an unassessed supplier

The week

On March 8, 2023, SVB Financial Group said it had sold securities at a loss and planned to raise capital. Its depositors, concentrated among venture-backed technology and life sciences companies and their investors, began withdrawing funds rapidly. According to the California regulator’s closing order, customers initiated withdrawals of about $42 billion on March 9. On March 10 the state closed Silicon Valley Bank and appointed the FDIC as receiver. It was the largest US bank failure since 2008. For a weekend, many companies did not know whether they could reach deposits above the $250,000 insurance limit or make payroll. On March 12 the Treasury, Federal Reserve and FDIC said all depositors of SVB and of Signature Bank, closed that day, would be protected. The Fed also created a new lending facility for banks.

Most commentary on SVB focused on the bank: its interest rate risk, its concentrated and largely uninsured deposits, and the supervisory response. For the organizations that banked there, the experience was different. Between Friday and Sunday they faced a question most had never asked. What happens to operations if the bank holding our money stops working? That is a supplier question. It divides into three exposures that treasury, finance and technology teams share: cash, payment flows and dependent services.

Cash

The first exposure was the balance itself. Many SVB clients held operating cash far above the insurance limit at a single bank. Sometimes the bank had required it as a condition of lending. Sometimes the relationship began when the company was small and was never revisited. A company with one bank and months of runway in it had concentrated its survival in one counterparty.

Procurement discipline offers a template. Organizations require backup suppliers for critical components and monitor the financial health of key vendors. Banks were rarely held to the same standard, because a bank was seen as infrastructure. The corrective steps were plain. Spread operating cash across more than one institution. Use insured sweep or reciprocal deposit arrangements where they fit. Hold reserves in Treasury bills or government money market funds rather than in uninsured deposits. Each choice costs some yield or convenience. None requires predicting which bank will fail.

A treasury policy can make this concrete. It can set a maximum uninsured balance per bank, expressed in days of operating cash. It can set a minimum number of banking relationships with live access, and a counterparty review cycle that includes public financial indicators. Credit agreements that require all deposits at the lender deserve negotiation at the next renewal.

Board reporting closes the loop. A one-page view of balances by bank, insured and uninsured, with days of runway at each, takes little effort to produce monthly. It turns an abstract concentration into a number directors can question.

Payment flows

The second exposure was the plumbing. Even companies with modest balances at SVB had payroll, vendor payments and customer collections routed through it. A payroll file sent on Thursday might not settle. Customer payments directed to SVB accounts were stranded. Card programs and merchant settlement tied to the bank were disrupted.

Moving a balance is quick. Moving payment flows is not. It requires new account details with customers and payers, new connections with payroll providers and updated vendor instructions. Larger firms must also re-establish file transmission, authentication and approval workflows with a new bank. Companies that already had a second operating bank with live payment capability could redirect payroll within a day. Companies that had to open an account and build payments from scratch did so in a weekend when thousands of others were trying the same thing.

The technology lesson is configurability. Payment integrations hard-wired to one bank’s file formats and credentials are a single point of failure. A treasury management system or payment hub that can route to more than one bank, with backup credentials and approval chains already set up, turns a crisis into a configuration change. Testing matters here. Running a real payroll cycle through the second bank once or twice a year proves the path works. Holding an account that has never moved money proves nothing.

Fraud risk rises during these switches. Changing bank details is exactly what payment fraudsters impersonate. Firms redirecting collections had to send new instructions to customers who were being told by security teams to distrust such messages. A pre-agreed verification method, such as a callback to a known contact, keeps the switch from becoming an opening.

Dependent services

The third exposure was the least visible. Many organizations did not bank with SVB directly but used services that did. A payroll provider, a payment processor, a lending platform or a fintech partner might hold client funds or settle transactions through it. Their clients learned about this dependency when their own payments stalled.

For fintechs and broker-dealers this is a core diligence question, not a footnote. Ask payment, payroll and platform vendors which banks hold their settlement and client funds, how those funds are titled, and what the contingency plan is if that bank fails. Ask whether client funds sit in accounts that would be insured for the end customer, and whether records are good enough for that coverage to work in practice. Vendors that could not answer quickly were showing something about their own treasury discipline.

Broker-dealers and fintechs that hold client money also sit on the other side of this question. Their customers, and their regulators, will ask where client funds are held and what happens if that bank fails. A clear, tested answer is now part of the product. It should cover how quickly funds could be moved and whether the records would support pass-through insurance claims.

These steps carry costs, and they should be decided as procurement trade-offs. A second operating bank adds fees, reconciliation work and integration effort. Insured sweep networks and Treasury holdings give up some yield and add operational steps. Contingency testing takes staff time. Against those costs sits the value of continuing to pay staff and suppliers when a bank fails. For most firms the insurance is cheap relative to that outcome. Treasurers should present it to the board as a priced resilience choice.

With hindsight

SVB’s closure was followed by Signature Bank’s that weekend and First Republic’s in May 2023. The Federal Reserve’s own review, published in April 2023, criticized both the bank’s management and its supervisors. In November 2023 the FDIC finalized a special assessment on larger banks to recover the cost of protecting uninsured depositors. Congress did not enact the deposit insurance changes the FDIC laid out that May; bills to raise coverage for business payment accounts were still pending in 2026. Corporate treasury practice changed more quickly, with more multi-bank relationships and greater use of reciprocal deposit networks and money market funds. The 2024 bankruptcy of banking-as-a-service middleware provider Synapse, which left end users unable to reach their money for months, made the dependent-services point from another direction. Firms that treated banking as a supply chain with backups weathered both events best.