How to Protect Your Business In A Banking Crisis

Written by Kirsty Braines, CEO of Oliver Wight EAME 

Not many people had heard of Silicon Valley Bank (SVB) when it collapsed in early March. A week later, 167-year-old Credit Suisse was forced by the Swiss government into an emergency merger with rival UBS, and last week First Republic Bank was taken over by JP Morgan Chase.  Are there more to come, and what might be the impact on your business?

Whatever you think about what caused the downward spirals suffered by these banks, it would be wise to work on the basis that there may well be more to come and, if so, their consequences could be far-reaching.

But what does that mean for businesses now, when things still seem relatively calm?   Hunker down or “business as usual”?

Neither!

Regarding “hunkering down”, it seems that since David Cameron unveiled the European Union Referendum Bill in May 2015, nothing has been either stable nor reliable… and increasingly so:  from European war to culture wars; from global pandemics to global warming; from Brexit angst to Suez Canal blockages and tanker hijackings. What is next to come?

Who knows!  But any business that hunkered when there was a major crisis over the past few years will have gone nowhere – and will now be facing a very real existential threat from rivals who have been investing, innovating and growing.

So the longer run cost of hunkering down is high, should businesses carry on regardless?  I caution against this too.

After all, with the previous crisis just 15 years ago, we saw how cross-trading and high leverage creates hidden systemic risk.

One of my clients was particularly hit hard at the time.  A large business with a decades-long record of trading profitably, it overnight found, like many other businesses, that its loan was pulled and it was instead having emergency meetings with its bank, a well-known high street bank, to borrow enough just for its day-to-day cashflow… something few would have imagined at the start of 2008. Something few would imagine at the start of 2023 too!

Having advised dozens of large and international businesses, what separates those that take predicaments in their stride, and stands in stark contrast to those that are constantly fire-fighting one crisis after the next, is having a formal management process driving the consideration of the latest risks and insights from a macro perspective.

This is not about having disaster plans should things go badly wrong suddenly (as important as these are), this is about pre-emptive action to identify and mitigate problems before they arise.

With regard to the troubles in the banking system, businesses should be carefully looking across their whole supply chain, from suppliers to customers, to look for vulnerabilities.

For instance: if you have one large loan from a large institution, would a handful of smaller loans from different banks put you in a more secure position? Do you have a vital client or critical supplier that is vulnerable through being highly-leveraged? Are you, your customers or key suppliers vulnerable to liquidity suddenly disappearing?

These should be discussed by you at a senior leadership level, and also by the next leadership level down, with weaknesses identified and actions agreed.  Discussing such problems now at a senior leadership level is the very best way to enable pre-emptive action rather than waking up to a calamity.

Given one recent Chancellor of the Exchequer recounted that his predecessor advised him “when it comes to banking crises, it is never too early to panic”, if your business is not already doing this now, you might come to regret it.

However, don’t just do it once.  At Oliver Wight, we advise business leaders to regularly look at changes over a 36-month horizon. Ultimately, a business requires in-built agility to respond to potentially anything. Instead, we often find that many leaders are so focussed on fighting fires, that no one is at the front of the train preventing a future crash.

Where will the next global crisis be?  Who knows!  However, given The Economist has been running articles weekly about the situation facing Taiwan, with one article recently in its newsletter entitled “America and China are preparing for a war over Taiwan:  It would spread far across the region, with devastating consequences for the world”… no business should be taken by surprise should the worst happen here in the coming years.

If it happened next year or 2025, how would your business fare?  Don’t know?  If you have operations, major customers or suppliers in the Asia-Pacific, you definitely should!

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Kirsty Braines is CEO of Oliver Wight EAME.  Oliver Wight is a leading consultancy that since 1969 has been helping organisations truly transform their performance, while creating more fulfilling roles for the people within it.