Why the Recent Banking Crisis Reminds Us to Trust Our Instincts

March 30, 2023

One of America’s foremost Founding Fathers, Benjamin Franklin was also the nation’s patron saint of financial self-help. 

Even today, we can all still learn a financial lesson or two from his timeless advice.

Franklin famously said, “When in doubt, don’t” – and in the context of the recent banking crisis, the financial services sector, and all businesses and individuals, should keep Ben’s words of wisdom in mind.


Firstly, the failures have shown that the failure of any bank, regardless of its size or clientele, can have far-reaching consequences for the broader economy. As we saw with Silicon Valley Bank and Signature Bank, federal regulators understand this and take their role seriously. It’s also why it's important for banks to prioritize safety and soundness over chasing risky or overly aggressive, concentrated business strategies. For all institutions, a second – and third, or more look – at their risks and risk mitigation strategies is always prudent. 

The same principle rings true for individuals and businesses: Assess your risk. Know where your cash assets are concentrated, and know how to mitigate that risk in the event of sudden economic events. Understand how much of your cash assets are covered by FDIC insurance per financial institution.  Depositors do not need to apply for FDIC insurance, as coverage is automatic whenever an account is opened at a federally insured financial institution.   The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category; however, a depositor may qualify for coverage over $250,000 if the funds are in different ownership categories and all FDIC requirements are met.  The FDIC offers an insurance coverage calculator on their website.

Mitigate your risk of uninsured deposits at financial institutions. How? Ask your institution about the availability of programs that automatically sweep your deposits into a network of banks thus making your funds eligible for greater FDIC insurance protection.  CDARS (CD account registry service), or Insured Cash Sweep (ICS)  are two frequently offered programs to customers to securely and conveniently access multi-million-dollar FDIC protection on large deposits.   

Additionally, for businesses and individuals, we are dealing with the sad reality that the recent bank failures have led to an increased risk of cybercrime – and we all need to redouble our efforts to take these risks seriously and implement appropriate precautions. Reducing exposure to fraud and cyberattacks is now – and will always be – business-critical.

Where does Franklin’s warning particularly apply in this case?

It’s important to be wary of any payment instructions or requests that come from unfamiliar sources or banks that have been seized by regulators. Verifying new payment instructions with known contacts at the vendor, and not relying on the telephone number provided in the new instructions, can help prevent fraudulent transactions.

Also vital: Educating employees about the increased risks, and reminding them to adhere to your company's policies and procedures for handling payment change requests. By being vigilant and cautious, your company can help minimize the risk of cybercrime and protect your financial assets.

Finally, be on the lookout for suspicious emails with keywords related to payments or banking authorities. Research consistently shows that almost all text messages are read by the recipient versus 20% for emails, which makes email especially vulnerable to malicious actors. Regrettably, distinguishing authentic communications is now a daily activity for everyone.

“When in doubt, don’t” applies here, too: It is always better to err on the side of caution, and verify the authenticity of any communication before taking any action.

All of this may seem “boring” – because it is human nature to want to take chances. In the case of banking, though, sticking to the rules and operating in a transparent manner can help maintain confidence in the financial system and support the growth of the economy over the long term. And we can all support the continued safety of assets and the system more broadly, by taking precautions against ever-growing cybercrime threats. 

A leading provider of risk management services, including internal audit, information technology, and compliance services located in Pennsylvania, New Jersey, Maryland, Delaware, and New York, Herbein | FOS Risk Management is a division of Herbein. Learn more about the services offered by Herbein | FOS Risk Management here.


Article contributed by Debbi S. Fetter, CFIRS, CISA, CFSA, CRMA, CRCM, CCSA, CERP