This month’s Silicon Valley Bank (SVB) crisis has quickly become the second-largest bank failure in U.S. history. With business leaders having haunting flashbacks to the 2008 financial crisis, the collapse of SVB was undoubtedly alarming and confusing as everyone moved swiftly to try and control the outcome.
While the Federal Deposit Insurance Corporation (FDIC) has enacted important measures, such as creating a Deposit Insurance National Bank of Santa Clara (DINB), the event presents a major initial risk to the economy, even with the entire fallout of the event yet to unfold.
While most companies can still make payroll and funds available, the collapse brings into question our systemic risk and future ability to manage payrolls. Business leaders want payroll that is timely, personalized, and compliant. How can organizations make sure they can protect their company’s finances now and in the future?
Examining Financial Risk on Payroll
Right now, the most vital thing leaders can do for their businesses is to stay level-headed and calm. Making panicked, rash decisions often leads to costly, avoidable mistakes. It’s important to note that the FDIC is guaranteeing access to SVB accounts no matter the insurance limit, allowing HR teams and payroll providers across the country to make payroll. Traditionally, banks have only been legally responsible for the FDIC-insured maximum amount of $250,000. When corporate accounts hold a million or more dollars and the maximum is reduced to $250,000, it can be a devastating capital loss for a business.
President Joe Biden spoke directly to small businesses in a recent press conference when he said that “the deposit accounts at these banks can breathe easier knowing they’ll be able to pay their workers and pay their bills.”
FDIC support could potentially encourage risky financial decisions in the future, creating another banking crisis similar to SVB or the 2008 financial crisis. We hope these bank collapses are few and far between, but the risk of these events means due diligence on our part.
Protecting Your Company
For HR leaders managing payroll for their organization, it’s important to consider the size and scope of the company’s banking institution. As your organization grows, working with multiple banks can minimize the risk of having all your funds in one location. Businesses should also make sure they have a contingency plan that includes freeing up cash to make sure employees are paid—a noted concern by companies involved with SVB.
For organizations that outsource payroll from a vendor, it’s important to choose a payroll partner that can deliver the functionality, support, and training your organization needs while meeting all regulatory requirements. HR leaders should examine the license and certifications provided by all payroll vendors and consider those that have independently audited Nacha certification. Third-party senders must meet the Nacha certification’s “strong core practices and corporate governance” to be considered and must have “proper controls in place to manage risk.” Certifications like these decrease the level of risk and ensure your employees are paid the first time every time. Additionally, payroll services should come with a dedicated team that can directly support any questions when situations arise and help meet your business needs.
The SVB collapse is a wake-up call for all leaders of the systemic risk within our banking systems. Reviewing your risk now and preparing for any future crisis will set your company up for success to always make payroll for your employees in the future.
James Paille is Director of Compliance at IRIS Software Group Americas.