Managing Subsurface Currents in Financial Crisis Lessons from the Silicon Valley Bank Case

Dr. Carmit Rapaport & Chelsea Zfaz

The financial sector operates in a turbulent environment, where national and internationalcorporations, public organizations and the public are involved in regulations,demands and supplies, which span over short and long-term processes. Moreover, technologicaland political developments present the sector with both opportunities and constraints.The dynamics within and between these actors make this environment VUCA – Volatile,Uncertain, Complex and Ambiguous. As a result of these qualities, thestraightforward cause-and-effect relationship between an event and its outcomeis no longer valid. It is therefore necessary to consider the  subtler, underlying influences that affect thesituation – i.e. the subsurface currents.

A crisis eventoccurs when the needs of those impacted by the event outweigh the resourcesavailable to manage them. In order to prevent an incident from escalating intoa crisis, it is important to identify and be aware of potential risk factors -both known and unknown – which could lead to a crisis event. By becoming aware of the underlying (or "subsurface" – as referred to in academicjargon) currents, one would gain the most important advantage – the ability toactively control the situation, rather than being controlled by other forces.

Gaining awareness primarily involves gathering information from a wide range ofindicators and sensors in the environment, obtained from as many sources aspossible. Secondly, it is crucial to have a thorough understanding of your own organization. Just like a person - an organization has its own habits, natural processes, and established partnerships. During a crisis, the organization islikely to act in a manner consistent with its established patterns. It is therefore essential to know and follow established protocol, define key performance indicators (KPIs), and ensure that employees comply with standard operating procedures (SOPs) to serve as a basis for crisis management. Any deviation from these established processes while the underlying currents of the situation continue to evolve can result in unexpected surprises and challenges when attempting to implement what should have been already in place. Lastly, keep adaptingto the underlying currents; consistently try to "go with the flow". Learning from others’ experiences, simulating potential risks and outcomes, and playing the "devil's advocate", will allow managers to maximize their response resources as well as their personal and organizational flexibility andcompliance with the subsurface events.

Upon examination of the Silicon Valley Bank case, it is apparent that the crisis unfolded right under the managers’ noses, as they were not aware of the subsurface currents. Instead they relied on their internal processes, as well as their customers’ behavior,to continue as usual, without anticipating the impact that the media,especially the social media, could have. The managers attempted to avoid a repeat of the 2008 financial crisis by avoiding a mass cash withdrawal, but their lack of foresight ultimately led to this precise scenario.

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