he erosion of public trust in institutions has accelerated since the outbreak of COVID-19. The recent bank failures have exacerbated market uncertainty and fueled anxiety among consumers. According to financial experts, the collapse of Silicon Valley Bank (SVB) was foreseeable and could have been prevented, leaving ordinary people questioning what went wrong.
SVB is currently under investigation for not having a Chief Risk Officer from April 2022 to January 2023. It seems that the bank’s executives may not have been attentive to adapting their internal risk environments or staffing to adequately assess risk. If confirmed, this could be considered a breach of their duty of care.
Opinion editorials and politicians are vigorously debating the root cause of the problem. Is it due to insufficient oversight or regulation, mismanagement by executives, or a combination of these factors?
Some pundits have raised concerns that SVB board members and executives devoted too many bank resources (time and financial) to causes not directly related to the bank's mission. We are still learning more about the collapse and politicians continue to debate what more resilient regulations could look like, but there is something useful to take away from these pundit critiques. After all, history has shown that organizations that branch out too far from their core mission risk becoming sidetracked and diverting precious attention and resources from their primary goals.
Despite the wide range of activities they undertake, banks are primarily entrusted with the crucial responsibility of accepting deposits, pooling them, and then lending them out to those who require financing, as emphasized by the International Monetary Fund (IMF). The paramount objective is to ensure that these funds are accessible to people when they need them. In the end, visionary ideas must be reconciled with economic realities.
Unintended Consequences
Investors and startup CEOs have underscored the grave repercussions of the bank’s collapse. SVB’s collapse not only jeopardized the survival of conventional tech startups, but also failed to safeguard the assets of companies that had prioritized diversity, equity, and inclusion (DEI) and climate-related products and services. These are the very things that the bank’s leaders had given the highest level of attention to.
Executives at RA Capital wrote a letter on March 12 to Treasury Secretary Janet Yellen and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg, urging the federal government to act quickly and provide clear direction. They emphasize that any missteps could have long-lasting consequences, potentially impeding U.S. competitiveness and innovation, and jeopardizing climate change and energy investment goals.
But, perhaps the most poignant call to action came from Tiffany Dufu, the well-respected Black female Founder and CEO of The Cru, who posted a LinkedIn plea for financial help for her company, an SVB customer. Dufu urged her network to support startup founders, particularly Black woman founders who receive less than 1% of venture capital funding. She wrote: “If you know a startup founder, reach out to them to offer support. If it’s a Black woman founder, put her on speed dial. It's hard enough to execute and fund a vision you believe will change the world.”
Back to the Basics
Warren Buffett’s first and foremost rule is “never lose money” which is particularly applicable when it comes to handling other people’s money.
In times of crisis, it is essential to maintain an unwavering focus on Job #1—the core function that your institution must perform to survive and thrive. When things are headed south, it is crucial to go back to the fundamentals.
Take a moment to reflect on your organization’s purpose. Revisit your charter and mission statement to evaluate if it aligns with your reason for existing, or if it has drifted towards vague and challenging-to-measure aspirations. Instead of fixating on ambitious but uncertain goals, have you prioritized immediate solutions to best serve your customers?
To assess the focus and effectiveness of your organization’s leadership, evaluate how executives and board members allocate their time and what they publicly communicate. Are leaders striving for unattainable objectives to the detriment of realistic targets? Or are they actively taking steps to mitigate risks and gauging the success of these actions to ensure that innovative ideas are sustainable?
As representatives of multilateral financial institutions convene, discussions should place the greatest importance on promoting financial stability and creating opportunity for customers, rather than focusing on lofty aspirations. In challenging times, banks and their boards should refocus on the fundamentals and remind themselves of the original purpose of their institutions. The most efficient approach to attain societal objectives is by guaranteeing economic security.
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Why Banks Need to Go Back to the Basics for Sustainable Growth
Night view of San Francisco's financial district. Photo by Edgar Chaparro on Unsplash
April 11, 2023
Public trust in institutions has eroded more rapidly than ever since the pandemic, and the collapse of financial institutions like the Silicon Valley Bank accelerates this still further. Institutions should refocus on their core mission to rebuild trust and bolser resilience, writes Lisa Gable.
T
he erosion of public trust in institutions has accelerated since the outbreak of COVID-19. The recent bank failures have exacerbated market uncertainty and fueled anxiety among consumers. According to financial experts, the collapse of Silicon Valley Bank (SVB) was foreseeable and could have been prevented, leaving ordinary people questioning what went wrong.
SVB is currently under investigation for not having a Chief Risk Officer from April 2022 to January 2023. It seems that the bank’s executives may not have been attentive to adapting their internal risk environments or staffing to adequately assess risk. If confirmed, this could be considered a breach of their duty of care.
Opinion editorials and politicians are vigorously debating the root cause of the problem. Is it due to insufficient oversight or regulation, mismanagement by executives, or a combination of these factors?
Some pundits have raised concerns that SVB board members and executives devoted too many bank resources (time and financial) to causes not directly related to the bank's mission. We are still learning more about the collapse and politicians continue to debate what more resilient regulations could look like, but there is something useful to take away from these pundit critiques. After all, history has shown that organizations that branch out too far from their core mission risk becoming sidetracked and diverting precious attention and resources from their primary goals.
Despite the wide range of activities they undertake, banks are primarily entrusted with the crucial responsibility of accepting deposits, pooling them, and then lending them out to those who require financing, as emphasized by the International Monetary Fund (IMF). The paramount objective is to ensure that these funds are accessible to people when they need them. In the end, visionary ideas must be reconciled with economic realities.
Unintended Consequences
Investors and startup CEOs have underscored the grave repercussions of the bank’s collapse. SVB’s collapse not only jeopardized the survival of conventional tech startups, but also failed to safeguard the assets of companies that had prioritized diversity, equity, and inclusion (DEI) and climate-related products and services. These are the very things that the bank’s leaders had given the highest level of attention to.
Executives at RA Capital wrote a letter on March 12 to Treasury Secretary Janet Yellen and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg, urging the federal government to act quickly and provide clear direction. They emphasize that any missteps could have long-lasting consequences, potentially impeding U.S. competitiveness and innovation, and jeopardizing climate change and energy investment goals.
But, perhaps the most poignant call to action came from Tiffany Dufu, the well-respected Black female Founder and CEO of The Cru, who posted a LinkedIn plea for financial help for her company, an SVB customer. Dufu urged her network to support startup founders, particularly Black woman founders who receive less than 1% of venture capital funding. She wrote: “If you know a startup founder, reach out to them to offer support. If it’s a Black woman founder, put her on speed dial. It's hard enough to execute and fund a vision you believe will change the world.”
Back to the Basics
Warren Buffett’s first and foremost rule is “never lose money” which is particularly applicable when it comes to handling other people’s money.
In times of crisis, it is essential to maintain an unwavering focus on Job #1—the core function that your institution must perform to survive and thrive. When things are headed south, it is crucial to go back to the fundamentals.
Take a moment to reflect on your organization’s purpose. Revisit your charter and mission statement to evaluate if it aligns with your reason for existing, or if it has drifted towards vague and challenging-to-measure aspirations. Instead of fixating on ambitious but uncertain goals, have you prioritized immediate solutions to best serve your customers?
To assess the focus and effectiveness of your organization’s leadership, evaluate how executives and board members allocate their time and what they publicly communicate. Are leaders striving for unattainable objectives to the detriment of realistic targets? Or are they actively taking steps to mitigate risks and gauging the success of these actions to ensure that innovative ideas are sustainable?
As representatives of multilateral financial institutions convene, discussions should place the greatest importance on promoting financial stability and creating opportunity for customers, rather than focusing on lofty aspirations. In challenging times, banks and their boards should refocus on the fundamentals and remind themselves of the original purpose of their institutions. The most efficient approach to attain societal objectives is by guaranteeing economic security.
