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What a tumultuous couple of weeks. The sudden collapse of Silicon Valley Bank (SVB) and the recent acquisitions of Credit Suisse by UBS and New York Community Bancorp's purchase of Signature Bank's deposits have been a stark reminder of the fragility of our financial institutions and the significant impact that investor and depositor panic can have on their stability. Accountants and bookkeepers must stay up-to-date with these developments and informed about how best advise their clients on how to navigate the turbulent financial landscape. Read on to learn what conversations you should be having and how to protect yourself and your clients.
The trickle-down effect
In the wake of the SVB collapse, the importance of FDIC insurance for fintech companies has come to the forefront. The FDIC insurance covers up to $250,000 per depositor, per institution, providing a safety net for customers in case of a bank's failure. These entities, such as payroll companies and other financial intermediaries like payment platforms (think Venmo, PayPal, etc) or bill pay platforms (think Bill, Corpay, Melio, etc.) rely on the stability and liquidity of banks to facilitate transactions, disburse payments, and manage funds for their clients.
As we saw on March 10, 2023, fintech companies that banked with SVB could not access their funds, which then caused delays to their clients' transactions - including payroll. The time and money spent addressing the concerns of their customers was not insignificant and only exacerbated the process of assessing and mitigating their own financial fallout. When these companies' deposits exceed the insured amount, it not only increases their risk of loss, but their customers'.
Due diligence when selecting a provider
As advisors, we should be prepared to advise clients on how the crisis may affect these essential services and encourage them to research or ask questions of their service providers to ensure they are protecting themselves from a disruption in service or even a financial loss. What is their contingency plan in the face of bank failures or liquidity issues and how diversified are their own banking relationships?
Accountants and bookkeepers should be aware of the various strategies for mitigating risks and should be capable of discussing them with their clients. Some fintech companies are exploring options such as partnering with multiple banks, implementing advanced risk management strategies, and maintaining higher capital reserves. This information can often be found in the financial statements or 10-K reports of publicly traded companies by combing through the annual report and/or footnotes.
Keep the lines of communication open
We need to encourage our clients to maintain open lines of communication with their service providers, staying informed about any potential disruptions and the steps being taken to address them. By staying proactive and well-informed, clients can make timely adjustments to their financial operations and minimize the impact of the banking crisis on their businesses.
This includes staying informed yourself. As a "trusted advisor", your client is depending on you to be up-to-date and in-the-know with regulations and current events.
Do you have questions about this article? Email us and let us know > info@woodard.com
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