Banks in Trouble: How Businesses Can Navigate New Volatility

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March 22, 2023

Bank collapses and industry volatility are creating challenges worldwide, but key considerations could lead to resilience.

Key takeaways:

  1. Sufficient coverage, legal strategy and consulting can help in the event of bank failures.
  2. Diversifying a company’s approach to capital can create new opportunities for managing risk.
  3. Employers may face unique human capital challenges when a bank struggles or fails.


Recent banking industry turmoil has proven costly for financial institutions and governments, and triggered uncertainty among business leaders, investors and other stakeholders. In the U.S. the Federal Reserve and several leading banks have stepped in to shore up a number of struggling lenders. Meanwhile, in Europe, a global bank has bought a troubled rival to help calm a crisis of confidence. As the situation develops, banks, shareholders, depositors and other stakeholders face a volatile financial landscape. But taking a strategic view of today’s banking crises could help them respond to a range of challenges and mitigate issues.

“Volatility in the banking sector and its unpredictable secondary impacts should prompt risk managers to stress test their insurance policies, diversify their funding sources and war game their human capital and M&A strategies,” says Joel Sulkes, managing director and Global Financial Institutions practice leader at Aon.

In Depth

This month’s banking woes have put the financial sector on high alert. Banking clients are closely examining their assets and liabilities, and companies are reviewing the risk profiles of the banks with which they do business. Meanwhile, banks that are not directly affected are looking ahead to see how they can prepare themselves for tough times.

In response to today’s banking failures, companies are seeking to manage risk, minimize liabilities and maintain liquidity. These steps include taking a proactive stance on insurance coverage and scoping new sources of capital in addition to planning for employee needs in the event of a bank collapse. Banking failures may also prompt litigation from shareholders, adding costs and complications for banks in distress.

Reinforcing Protection

Bank failures expose a bank and its clients to a host of potential vulnerabilities. Deposits over a certain threshold may not be federally insured, and today’s banking troubles are increasing interest in extra levels of FDIC protection. Bank collapses could also undermine asset values in capital markets, and bank clients may seek alternative capital to bolster asset values.

Bank directors and officers may face lawsuits from shareholders in the event of a collapse, and depositors may take legal actions against banks as well. Solvent banks can prepare for this possibility by stress testing their financial lines insurance policies for failure and regulatory investigation scenarios to ensure they perform for the benefit of a variety of stakeholders as intended.

Bank failures can also leave account holders exposed to cyber risk, as cyber criminals may seek to take advantage of the uncertainty that accompanies a bank’s collapse. These cyber crimes could include phishing, impersonation or direct hacking of accounts. Having cyber insurance and a clear plan of action in the event of a cyber attack could help banks mitigate risk in these circumstances.

Strategies for Capital

When a bank fails, its clients may need to turn to alternate sources of capital to maintain operations. A company’s intellectual property (IP) is a valuable asset, and by accurately valuing and appropriately insuring its IP, a business could make itself more appealing to lenders in a time of need. Disruptions in the banking industry may also generate cascading and unpredictable credit deterioration across a number of sectors necessitating a broad range of solutions for managing credit risk including through the (re)insurance markets.

Bank clients may also look to mergers and acquisitions to weather the disruptions caused by the bank’s collapse. These clients will need to look to external sources for M&A financing, with an upheaval in the banking industry creating space for private equity or venture capital firms to act as lenders. Companies seeking to be acquired will need to prove their value (including IP), level of insurance coverage, cyber health, and people strategy to be attractive to potential buyers.

Employee Considerations

In the wake of a financial crisis, workforce resilience is a critical strategic consideration. As a bank prepares to cease operations, it must identify which staff will need to be retained throughout phases of closing and determine how they will incentivize retention. Closing actions may also include clawbacks for executives, and keeping an eye on cash conservation throughout shutdown is essential.

A bank collapse may affect its customers’ workforces as well. Should the bank a company uses fail, there are several personnel and operational considerations a company must address. Companies that work with a bank in crisis will need to take immediate action to pay their own employees and service providers. This requires an alternate source of capital and potentially asking the employers they serve to make special accommodations until a relationship with a new bank has been established.

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