March Brings Madness to the Financial Markets
I, like many sports fans, enjoy March Madness. For the uninitiated, it’s the nickname for the tournament of all tournaments (save for the World Cup). Each Spring, 68 NCAA Division I colleges and universities compete to decide its basketball National Champion. Pundits and fans think they know who’s going to win each game, only to be shocked when a lesser-known entity or a team with “less talent” prevails. It leaves many wondering: What just happened? Madness.
I, like many who live every day in the financial services space, do not enjoy madness. Yet March has delivered it in droves throughout the banking sector, creating a ripple effect across the economy. First Silicon Valley Bank failed. Then Signature Bank. Then financial services behemoth Credit Suisse faced trouble. It leaves many wondering: What just happened? Madness.
Numerous articles have been written about each financial institution’s specific downfall. They’re important to understanding why—in the estimation of most economists—we are unlikely to go through what we did 15 years ago during The Great Recession. Each situation is unique. Customer bases are different. Lending strategies vary. Has it put the broader institution of banking into focus? Yes, and with good reason.
This recent turmoil reaffirms why companies need to rehearse their disasters and take a close look at their books, in the good times even more so than bad. Call it crisis communications, issues management, or dare I say for the sake of a sports analogy, a corporate game plan.
A good game plan is singular in focus. It’s developed to help you win games. Silicon Valley Bank won a lot of games—in the form of increased technology clients and deposits—throughout the pandemic. For the sake of oversimplifying this complex scenario, interest rates were low, borrowing was cheap, and the money was coming in (and the Bank’s stock price was rising). When you string together wins, the game plan looks solid. Keep running it back.
Purdue University came into March Madness as one of the top four teams in the country. They won 29 of their 35 games, including Big 10 regular season and conference tournament titles. Their leading scorer is a player who is as tall as the buildings on campus. Their game plan throughout the year remained largely the same (from this author’s perspective). Why would they change it?
But a game plan is never completely infallible. If only because your opponent also has a game plan to defeat you. For Silicon Valley Bank, in many ways, the biggest opponent was previously its biggest accelerator: the thriving tech startup landscape and low interest rates. A scene that was once flourishing softened in a hurry, as the economy hit harder times and interest rates rose. Deposits started rushing out. Their balance sheet was on tilt. We all say that no one has a crystal ball, but we know enough that good times don’t last forever.
In its first-round matchup, no. 1-seed Purdue was heavily favored to beat no. 16-seed Fairleigh Dickinson University, whose undergraduate enrollment rivals the size of its basketball team: the smallest in the tournament. But that size ultimately turned out to be Purdue’s downfall. A smaller, scrappier, faster, hungrier team that dominated from start to finish and sent the favorite packing. A 16-seed beat a 1-seed for only the second time in 152 tries.
Let the stories playing out in banking and on hardwood across the country be a reminder to us all. Challenge the status quo. Ask questions about what’s working, what’s not working, and what’s around the corner. As communications professionals, that’s our job, and why we’ve had such longstanding partnerships with our clients. No one strategy fits all.
Not to mention when things do go sideways, knowing how best to approach with internal and external audiences is critical. Silicon Valley Bank did itself no favors by issuing a press release with little context around why it was suddenly raising (a lot of) capital. And when investors and customers started to panic, it did itself no favors by essentially begging them to keep their money with the bank and saying that everything was going to be OK.
When things go wrong, it’s natural to shift focus inwardly. But what we do before that happens, and how it’s wrapped into the broader corporate game plan, separates the winners from losers.
While we’re all hoping for some normalcy to return to the markets, I’d be lying if I said I didn’t want to see more madness in the NCAA tournament. Maybe the longest shot, no. 9-seed Florida Atlantic University, winning the championship? It’s sports after all, not the broader financial system.
By Greg Hassel
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