Silicon Valley Bank implosion

The (sudden) implosion of the Silicon Valley Bank (SVB) that served about half of all VC funded companies in that region of the world has brought some interesting questions to the forefront. And it’s not “how did this happen”. It’s all well and good aiming to prevent fires in the kitchen, but they do happen so we need a contingency plan for that scenario.

Questions#

Roughly, my questions are:

1. Does your organisation put its liquid capital with one or with multiple banks?
2. If multiple, are they truly distinct entities?
3. What do you rate as the likelihood of one of your banks collapsing? Is it a “Black Swan” type (exceedingly unlikely to happen) event for you, or more likely?
4. With past observations including SVB, do you think an update of the likelihood assessment would be appropriate?
5. Do you have a clearly documented section on the impact and treatment of (one of) your organisation’s banks collapsing in your Business Continuity Plan (BCP) ?
6. Given the adjusted analysis of Likelihood and Impact, has the Risk profile of your organisation changed on this matter? To what level?
7. Are you comfortable with that (new) Risk level, or do you want to put in place (new) mitigations?

Adjusted Risk#

What it comes down to is that if this event, and a level-headed analysis of your own organisation’s position, leads you to change your opinion towards either Likelihood or Impact being higher than previously thought, then according to your Risk Matrix the Risk will likely also come out higher. It is of course up to your organisation to either accept that higher risk, or to Mitigate it back to a lower acceptable level.

Perception of Likelihood#

Now, the fact that something previously considered a Black Swan type event has occurred somewhere, does not mean it is (or becomes) in fact more likely - or less likely, for that matter. That’s not how statistics works.

Nevertheless, panic can be highly contagious. You don’t want to go overboard with your concern, but you do want to remain aware. It is prudent to look at such a scenario again, and see if it actually merits the label “Black Swan”, or a higher Likelihood.