By Beth Pinsker

Managing the $250,000 FDIC insurance limit wasn’t on Rafat Ali’s radar before, but that has changed

Sitting at his home office desk in New York on the Tuesday after the failure of Silicon Valley Bank, Rafat Ali is trying to get back to work running his company, Skift, a travel news website and event host. He’s been glued to that spot since the Friday before, when he saw the news on Twitter and realized he had millions frozen in the company’s business account.

“I thought my business was done,” says Ali, who is chief executive officer and founder of Skift. “Friday morning, I was a complete mess.”

It brought him to tears — literally. He called his chief financial officer, then the president of the company. “Both times, I broke down,” he says. “I’ve covered bankruptcies as a journalist, and all I could think was that you get pennies on the dollar. That was in my head. It was traumatic.”

Before the shutdown by the FDIC on Friday, Silicon Valley Bank, owned by SVB Financial Group(SIVB), was the 16th largest bank in the U.S., and catered to startups and other small businesses. It was the first bank failure of 2023, followed quickly by Signature Bank and lots of speculation about the spreading contagion of bank runs.

After gathering himself, Ali and his team quickly got to work, operating over a Google hangout all weekend as they tried to sort out the cash-flow problems and try to get access to their money. Some of this was muscle memory. As a travel-related company, Skift got hit hard in the first weeks of the pandemic. That was a slow-motion descent into madness, while this was a 72-hour debacle. They delayed alerting all of the company’s employees until their regular Monday meeting, because most of his staff was not aware of a small detail like where the company does its banking. “What would we have communicated except panic?” says Ali. “We had no concrete information.”

While they had no official communication with SVB over the weekend, Ali and his team did have a contact at the bank who was able to reassure them pretty quickly that they’d eventually have access to at least $250,000, they just didn’t know when. They had to follow the news to find out by the end of the weekend that the FDIC was going to allow them access to all their funds. By Monday morning, they were able to start to move money around.

“I haven’t been able to work until now on anything else. I can’t get that Friday morning image out of my head — that ‘Oh, my God, my business is gone!'” says Ali. “Today is better.”

Why have millions in one place?

The FDIC insurance limit has long been $250,000 per depositor, per account type, but this crisis has shed light on the fact that many depositors are way over that limit. It’s estimated that SVB had more than $150 billion in uninsured deposits.

“Nobody gave it a thought,” says Ali. “Small businesses shouldn’t have to. Turns out, you do have to give it a thought in terms of diversification of where to store funds.”

Small companies like Skift need to keep a lot of cash on hand — in their case, several million dollars — and keeping it all under insurance limits would require many accounts at multiple institutions. Payroll for a company of 75 people is not a small matter, for one thing. Ali says his payroll servicer requires the funds to be available one week before dispersal, which for them is on Wednesdays. So the transaction was already in progress at SVB when the lockdown happened. His events business has other heavy cash needs — venue rentals, travel, catering bills.

“This is not a thing that our CFO was focused on or thought of, such as putting money in T-bills or money-market funds. It’s not worth our time,” says Ali.

Ironically, Ali thinks SVB is right now probably one of the safest banks in the country, but he has started to move some of his company’s funds into other banks. One specializes in small businesses and further subdivides their accounts into partner banks to maximize insurance coverage.

“I’ve never had the opportunity to even explore it before,” says Ali.

The last time he moved banks was at the beginning of the pandemic, when Skift was previously a customer of SVB and he tried very hard to quit the bank. “We applied for PPP loans during the pandemic and it was a pretty terrible experience,” he says. But then their new bank got bought by SVB, and they ended up customers again.

When Ali didn’t know how long their money would be tied up, he was making plans to personally cover the coming week’s payroll and it gave him some needed perspective. “It’s my business, I’m not going to let it sink,” he says. Beyond that, the officers were rearranging cash flow so that incoming revenue would keep them running for a while, and Ali was actually pretty satisfied with where the business was after 11 years because they could handle the shock.

And the thought that the money in the bank might be gone forever? “I didn’t have time for anxiety,” says Ali, who soothed himself between crisis calls with a school event for one of his kids and cooking dinner. “The distraction was needed, your life has to continue.”

-Beth Pinsker

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03-18-23 0910ET

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