Resilience 201: Always Have a Backstop like Silicon Valley Bank
Richard Citrin, PhD
What’s Next? Helping You Build Resilience, Lead with Confidence & Embrace Change|Author and Speaker| Advisor and Coach
When we were kids, our parents were always there to protect us from making bad decisions, like running out into the street without looking for cars. When we went to the ballfield, the chain link fence behind the home plate helped our novice catchers with missed curve balls
As adults, we pay attention to traffic lights and listen to experts about financial investments, legal matters, and what kinds of workouts we should engage in to build fitness. At the office, compliance officers share what inbounds is, and advisors like me suggest ways to ensure your team is on the right track.
These actions all represent "primary backstops," which are preventive actions that keep situations from deteriorating to where they can't be easily retrieved. In the case of Silicon Valley Bank and First Republic, they ignored these first options and wound up relying on "secondary backstops," better known in this case as the US Government.
The Government typically plays this role in other situations like natural disasters, terrorism (9/11), and in the case of Covid relief, small businesses, and individuals. Many people decry using government funds until they need them and are glad they are there to back them up.
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For individuals, secondary backstops come into play as well. With so many 20-somethings struggling in their career, returning home to mom and dad's house to live and save money represents a supportive opportunity to launch a new career or life. Seeking help from high-stress situations, such as engaging in therapy or scheduling a weekend getaway, provides a tool for lowering stress intensity. Insurance represents a type of secondary backstop for when you decide to run red light and pay the price with a car accident.
There are clear grounds for looking at penalties for the management team at these banks for ignoring the primary backstops that were in place in their organizations and which not only impact their shareholders but also threaten a contagion of bank failures.
For us as individuals, the use of secondary backstops provides a bit of cover, but there is always a price to pay for those actions. It is far better to pay attention to that traffic light, knowing that it will help us avoid more misery than just having to wait another 45 seconds.