Community banking a year after Silicon Valley Bank failure

I spent nearly 20 years as a Silicon Valley Bank (SVB) customer. It was an easy place to start as a startup that wanted to grow quickly and have bankers who were supportive and understood the startup journey. Banking is necessary, but just not that strategic, in the early stages of a startup. When it does become strategic, you want a bank who has seen a business like yours before — both through good times and challenging circumstances. .When SVB failed, it certainly changed the startup banking landscape and how we approach banking for these companies. Startup banking teams from SVB platooned into many other U.S. banks, creating new divisions and expanded startup knowledge across the banking system — a need that was a long time coming..The silver lining.Many startups stayed or even returned to the new version of SVB. Inside a diversified bank, SVB is likely even more stable and healthier than the prior version. This failure also brought attention to "bank diversity" for the first time in my career. When banks failed during the Great Financial Crisis, it didn't affect the startup community. Yet, after the fated "SVB failure weekend," I saw many founders open a second bank account to have at least "one payroll cycle of cash in another bank." When it was unclear if cash would even be available to pay employees and bills, emotions ran high. And usually that will cause some behavior change, at least for a while. It will be interesting to see if that becomes a best practice from all investors and startup founders in the years to come..A newfound need for insurance.One of the other big areas of attention was how much of SVB's deposits were uninsured. Startups and venture firms weren't worried about SVB failing and the fate of their deposits, until it did and they did. Deposit insurance only matters when it does. In the aftermath of SVB, it seems every bank, even nonbank fintechs, are trying to provide as many insured deposits as possible — everyone is sweeping funds. IntraFi and their competitors have never seen so much demand!.The other side of more insured deposits and sweep programs is more attention to yield. At the same time SVB was struggling, it started paying depositors much higher yields than it historically had. Interest rates had risen at an unprecedented rate, both causing its demise in a troubled balance sheet, and exacerbating the pressure on it to keep any and all deposits it could. This led virtually every board room and CFO in the country to also ask, "Are we getting appropriately compensated for our cash?" and "What products should we have in place for yield and risk?" There's definitely been a renewed attention to cash and treasury management that has not been a topic of discussion in smaller companies for a long time..Consumers and banks alike react .Even consumers started asking more about, "am I getting properly compensated for my cash?" Savings and CD rates are being talked about and considered for the first time in a long time and are more of the consumer financial conversation. Even with bitcoin making a strong recovery in price, people don't feel like they have to take speculative cryptocurrency risk to earn yields on their dollars right now..On the bank side, I also feel like the new best practice is to turn on more liquidity options than ever before — whether it be Federal Home Loan Banks, deposit and loan networks, or trading partners, any lever that can quickly provide relief to an imbalanced balance sheet is needed. The big questions there loom, however: Will the velocity of deposits seen leaving SVB and other banks at that time become the new normal? How will banks forecast timeline changes? Will CDs become less hot money than even the historical core deposits were thought to be?.Trust was definitely shaken a bit in the banking system when some high profile banks failed. While some of the biggest banks were beneficiaries of deposit flows because they were considered "too big to fail," many community banks, for instance, also grew last year. Their steady and personalized offerings resonated with and attracted new customer segments. All this to say, we have seen a shifting tide toward other banking options and have more to observe in the coming years..If I were a community banker, in a time of heightened concerns and expectations, I'd adopt a few new approaches to double down on stability and trust. . Emphasize transparency and communication.Be more proactive and foster trust by being transparent about the bank's financial health, risk management practices, and regulatory compliance.Communicate regularly with customers, shareholders and stakeholders in your market, to provide updates on the bank's performance, initiatives and future plans.. Diversify deposit sources.Even though it may seem cannibalistic, encourage larger customers to spread their deposits across multiple banks to minimize risk exposure. Be their primary bank and help them manage it all in one place.Develop attractive deposit products and competitive interest rates to reward and retain existing customers, and also attract new ones.. Focus on customer experience and innovation.Invest in better digital banking solutions and partners to enhance customer experience and convenience. Be an early adopter of "customer in" thinking vs. the historical "bank out" approach.Leverage data analytics with the purpose to truly personalize offerings and provide targeted financial solutions.. Prioritize financial education and literacy.Even though the 2023 bank failures brought attention to FDIC insurance, yield and other bank risks, most customers aren't well-versed in these topics. Offer financial education programs to empower customers with knowledge about the industry and how to make more informed decisions.Lean into the opportunity to provide personalized financial advice and guidance to help customers achieve their financial goals.. Leverage community engagement and social responsibility.Community banks show up for their communities every day, yet rarely take credit for it. Keep doing that work and showcase the support of local philanthropic initiatives, sponsorships and community events.Embrace the natural social responsibility of your bank and your long-standing core values through your support of community priorities. It's not words written on a wall in community banks, it's in the servant hearts of everyone who works there..By embracing transparency, diversification, innovation, and a customer-centric approach, community banks can actually become stronger and more integral to the U.S. financial system. SVB (and others) caused many to reassess the banking system, and the ripples from that are still felt a year later. And as many community bankers remind me, the next challenge or opportunity is just around the corner, and they'll be ready for it, for the sake of their customers..Carey Ransom is managing director at BankTech Ventures, a strategic investment fund which invests in early-stage technology companies that support the future of community banking.