Silicon Valley Bank (SIVB) Collapse a Wakeup Call for Treasury Teams
Meet the Experts
⇨ Silicon Valley Bank's collapse highlights how quickly the cash and liquidity needs of CFOs can change.
⇨ SAPinsider research finds that working capital and liquidity management are significant pain points for SAP organizations. The failure of Silicon Valley Bank is a wakeup call for finance and treasury teams.
⇨ In light of Silicon Valley Bank's failure, organizations should consider enhanced reporting tools or new intelligent (A.I.-based) functions to improve treasury and cash management processes.
The sudden collapse of Silicon Valley Bank (Ticker: SIVB) highlights how quickly the cash and liquidity needs of CFOs can change. SIVB clients— primarily startups— and large technology organizations found access to cash reserves limited or completely frozen. Although a few organizations managed to pull their funds ahead of the collapse, most had no such luck.
We later learned that Signature Bank in New York (Ticker SBNY) also collapsed. It faced a potential bank run, fueled by concerns about its customer deposit mix of mostly real-estate firms and specialized finance companies, coupled with an emerging cryptocurrency deposit business.
From SAPinsider’s Cash Management and Cash Visibility benchmark report, we know working capital and liquidity management represent significant pain points across the treasury and cash management functions of SAPinsiders. The Silicon Valley Bank failure will introduce cash visibility uncertainty and risks into global markets, increasing the urgency for organizations to replace legacy and manual treasury and cash management functions with tools and solutions that enable finance teams to manage future disruptions effectively. In fact, 70% of organizations want to address treasury and cash management challenges with enhanced reporting tools or new intelligent (A.I.-based) functions.
However, as we’ve seen with current disruptions impacting Silicon Valley Bank (SVB) customers, even the most sophisticated treasury and cash management functions cannot prepare finance and treasury teams for a run on the bank entrusted to house your cash reserves for ease of use. For example:
- Circle was struggling to access $3.3 billion of cash deposits at SIVB. This represents roughly 8% of its $40 billion in cash reserves.
- Roblox’s filing indicated that Silicon Valley Bank managed 5% of its $3 billion in cash and securities at the end of February 2023.
- On Friday, streaming media giant Roku warned in a filing 26% of its cash reserves (~$487 million) were stuck at Silicon Valley Bank.
While the temporary unavailability of SIVB-held cash reserves likely had some short-term impacts on the regional working capital needs of Circle, Roblox, and Roku, these organizations were financially well-positioned to access separately managed cash reserves and lending facilities at other financial institutions to continue ongoing day-to-day operations.
However, smaller organizations reliant on cash reserves held by SIVB to enable core operations, such as payroll, received positive news, as the FDIC and Federal Reserve announced a move to fully protect all depositors of excess cash deposits at Silicon Valley Bank and Signature Bank New York. The Federal Reserve’s move to takeover will result in shareholders and some unsecured creditors from both banks being wiped out.
Despite the financial backstop provided to former customers of SIVB and SBNY, all organizations’ end-to-end treasury and cash management functions will be tested in the coming weeks and months. In addition to working capital and liquidity management, bank connectivity, credit management, payment processing, and risk management, will all be stressed by the fallout of SIVB’s failure.
The lessons learned from SIVB’s collapse should remind organizations that treasury is still the keystone of financial operations, regardless of the size or complexity of their business model. Treasury teams must ensure they have the tools and data to detect and respond quickly to early warning signs of impending operational disruption. Such scrutiny will undoubtedly be a significant factor in the decisions of finance and treasury departments to include working capital and liquidity management enhancements when choosing their treasury technology partners.
Thus, for organizations looking to re-strategize their treasury operations in light of Silicon Valley Bank’s failure, SAPinsiders data suggests they focus on cash visibility via enhanced reporting and leverage A.I.-based functions that enable visibility across financial operations. By taking such steps to improve existing treasury and cash management processes, SAPinsiders can further strengthen working capital and liquidity management functions.
Make sure to download and read our Cash Management and Cash Visibility Benchmark Report and our Automating AP Invoice Management Benchmark Report, available for all members of the SAPinsider Community.
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