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Beyond Silicon Valley Bank Headlines

An earlier version previously published on CU Insight.

Update 3/: This article inspired an interview on the topic with Sarah Cooke of The CU Connection. Watch it here!

I love wild rides. Whether Disney or Universal, if it’s a new thrill, I’m in. But Silicon Valley Bank (and Signature Bank) failing, followed by the “will they, won’t they” of FDIC insurance?

“Excuse me, I think my Express Pass took me onto the wrong attraction.”

By the end of the weekend, we knew the FDIC wasn’t going to let depositors run dry. This was likely the correct action, given the economic dangers of lost banking confidence. I read some observers saying that without this guarantee, people would no longer trust regional banks.

Geek note: This does raise an interesting observation on the FDIC insurance limits. It seems like they only come into play if the impact isn’t considered potentially systemic. Otherwise, you are effectively insured for your entire balance.

SVB Isn’t (Wasn’t) A Typical Bank

But we have to recognize that nearly every financial institution, especially regional players, aren’t in anything close to the situation Silicon Valley Bank put themselves in. Community banks and credit unions are nearly all well capitalized.

Beyond that, they balance risk actively and regularly. I’m betting you won’t find long-term near 0% Treasury bonds composing their assets. The teams which handle these challenges have my applause, as it’s a thankless job, but also essential.

Granted, you’re not also managing accounts with tens or hundreds of millions of dollars, with some over $1B. This is a completely different banking environment. To me, such an institution should be subject to regular stress-testing.

Geek note: Of course, such regulatory requirements were eliminated a few years back under the previous administration. Could this have been prevented had those still been in effect? Who’s to say, but it may have been caught earlier.

In discussing our own services with clients, this focus on institution risk and member opportunity is always at the forefront. I’ve never spoken with a credit union which made a decision “willy-nilly”. Have you?

It might interest you to know that SVB didn’t even have a Chief Risk Officer during an enormous rising rate environment (while knowing they held now-diminishing value assets). I mean, the CEO also sold $3.6M in stocks a few weeks ago, so…

Venture Capital Has Issues, Too

Eggs in One Basket - DALL-E
Questionable for eggs. Unwise for funds.

We can spend weeks diving into the poor decision-making by the SVB leadership. It’s ok, we won’t (others surely will!). But we will take a quick look at their questionable relationship with venture capital.

I originally asked why SVB was the preferred lender for most Silicon Valley startups. Turns out, VCs often required companies to use them exclusively in their funding contracts. That doesn’t seem to have any conflicts of interest or red flags, no sir-ee.

This was the literal definition of putting all your eggs in one basket, a practice the Easter Bunny is famously known for doing. Hey, you stuff all you can into the basket you have!

Geek note: A kids plastic egg hunt shouldn’t be the model for billions of dollars in startup funding. But what do I know?

Moving forward, I think it’s essential we take a close look at the relationships between venture capital and financial institutions. Should this come through new regulations? Oh no! However you feel, it’s clear the current practice doesn’t work.

If only one bank is willing (or allowed) to hold your funds and extend you a line of credit, well, I know some risk people who would have something to say about that.

Credit Unions Are Fine And Also Impacted

Plenty of credit unions serve the tech community. None of them failed. To my knowledge, none are in any danger whatsoever. Since the news broke, I continue seeing announcements of how well-capitalized credit unions are, like this one from Dort Financial CU.

This comes as no surprise to me, and likely to you as well, dear reader.

Yet reality is only a part of risk. The other component is perception. That’s why financial institutions, regulators, and even the President came out with a unified message: The banking system is solvent. Your money is safe. The issues can be managed.

(As you know, the survival of the financial system is partially based on people believing the financial system is safe. If everyone withdrew their funds at the same time, you have a problem a la Bailey Building and Loan.)

Risk Management Beyond Survival

Person Looking Over Water BW - DALL-E

However you feel about the bail-outs, it’s apparent this will have a passthrough effect on regulatory behaviors towards all insured institutions. Are you managing all your risk today, while planning for potential challenges tomorrow?

Thinking bigger, this will have an effect on how startups behave, or even their initial creation. Entrepreneurship is a keystone of American economic progress, and while you could say VC funded efforts are their own category, the moods flow downstream.

While existing depositors have secure funds, their lines of credit are now dry. Can they continue operating? Startups are cash-flow heavy and revenue light (hence the funding). Can they meet payroll, or even want to hire for growth?

Does this affect the Silicon Valley mantra of “move fast and break things” (on its own, maybe not a bad idea)?

Does it have a cascading impact on economic activity from startups to larger corporations reducing funding in their “moonshot” divisions?

Will this have any effect on inflationary pressures?

I…have no idea. But it’s important to ask these questions. And beyond those, this is the perfect time to reiterate how credit unions operate, why they exist, and what you provide for members to protect their own financial security.

Credit Unions (And Community Banks) Have An Opportunity

People want security in uncertain times. Sure, Bank of America and Capital One will be fine no matter what happens, but do they also have your best individual interests at heart? The value of credit unions comes from their community connection.

In the words of one of my favorite Jimmy Buffett songs, “It’s My Job”:

I got an uncle who owns a bank, he’s a self-made millionaire
He never had anyone to love, never had no one to care
He always seemed kinda sad to me and I asked him why that was
And he told me it’s because in my contract there’s this clause
That says, “It’s my job to be worried half to death”
And that’s the thing people respect in me
It’s my job but without it I’d be less
Than what I expect from me.

Mac McAnally, “It’s My Job”
From a live Mac concert

Our industry consistently shows this concern, and we’ve got one bonus his uncle did not: Plenty of people in the credit union world to love and care.

Since 2014, I have used this persona to help enhance CU member connection and community empowerment through barely-recognized sci-fi and Disney references. Ok, and also tangible recommendations.

A few banks and a bunch of venture capitalists did dumb things for a while. The consequences have arrived for some. Unfortunately, we’re all going to pay in some form.

This is where credit unions shine the brightest. Find your North Star and make sure members can see how it lights their way.

CU CEOs Are People Too!

What’s the meaning of life?

For those who shouted, “42!”, I salute you. For all others, responses range from, “helping others” to “becoming the best version of yourself.” No doubt you have your own internal motivations, and if it empowers you to grow in a positive manner, I’m all for it. But what if you are a credit union CEO?

Yes, they are people, too. And despite their passionate leadership of your credit union, they are imperfect specimens of the human race. Of course, I only know this due to Filene Research’s new study on Strategic Thinking and Credit Union Leaders.

Amongst their findings, credit union CEOs do a lot of things right. For example, when compared to 25,000 other industry executives, they lead in 4 of 6 categories of Vision. Great results, though there’s room for improvement.

The study found credit union CEOs are weak in the areas of Anticipate and Interpret, namely, seizing opportunities and getting caught in putting out fires. Plus, the larger the institution (or more branches), the harder it became for CEOs to make decisions.

Does that sound like your credit union? It’s not uncommon, and something we can all work to improve together!

Learn more about the study.

Rotating Banners and Lost Opportunities

Read how you can improve your credit union marketing.

Find archived articles that might pertain to your goals.

Learn about a credit union’s latest branch opening.

What’s the point of this post? You should be confused, and for good reason. There’s no consistency, the content has to be read separately, and who knows if you even stuck around long enough for the last choice (I hope you’re still reading!).

Many credit unions do something just like this every day. It’s called the rotating banner, and it needs to go.

One can compare a rotating banner on a homepage with changing billboards along the highway. It seems fair, right? Only the billboard is showing content to thousands of people a day, and each panel gets equal time. Imagine if that same billboard showed the same image to every driver for the first 5 seconds, yet they passed it in 15. What if your institution paid to be 4th in rotation? You wouldn’t be too happy, would you?

It’s the same on your website. If you’re lucky, a web visitor will give 10 seconds to decide if a page is worth their time (and given this data is from 2011, it’s almost certain the number has only gone down).

Assuming your site has a rotating banner set to 5 seconds, visitors will see (at most) two graphics. I’ve seen sites with 7, 8, even 10 rotating graphics! It would take a full minute to flow through each of these in succession. I’m sorry to say, but none of your members are spending that much time on your homepage.

On the web, goals must be defined quickly and clearly to have any success. The primary banner on your site must direct to the primary marketing goal at that moment. For the rest, you can have secondary areas and a clear menu structure.

You may notice retail companies “breaking” this rule, however, their visitors are potential customers browsing a product lineup. A commitment to remaining for a longer time is already set (i.e. They did not come for an unrelated purpose, then become distracted to stay much longer).  Companies like Apple and Microsoft (I use products/services from both) highlight this strategy.

We love seeing credit unions build success on new initiatives. It’s just disappointing when their results are compromised by burying a call to action behind today’s latest graphic. In fact, for our own partners, we can trace web hit falloff to moving a banner back from the first in a rotation.

Members hitting your website are opportunities. Engage them quickly and efficiently and they will reward you with additional services.

PS – The featured image is deliberately bad. It expresses the problem with trying to show a bunch of things in the same space. Nothing is to scale, there’s unrealistic lines, and it’s actively making stellar understanding worse. Sadly, few of you made it here to learn this.

Disclosure: Credit unions partnered with my firm may use rotating banners. If practices improved, our own services may be better promoted, resulting in a financial gain for both parties.

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