A handful of bank failures have dominated the financial headlines and contributed to significant market volatility in the first half of 2023.
For business owners, founders, and directors and officers, the inability to access funds that were deposited with an insolvent bank can prove to be more than just disruptive—it can result in a failure to meet their financial obligations and duties.
When these obligations (such as the ability to pay employees and vendors, or deliver on fiduciary responsibilities to stockholders) are not met, the leadership of companies may be exposed to lawsuits.
Directors & Officers (D&O) insurance can play an important role in protecting these individuals in such an event.
Anzen, a provider of proactive D&O and other lines of executive liability insurance, has compiled this checklist to help business owners, founders, and directors and officers be prepared in the event of a bank failure.
✅ Have enough cash runway. If your business is a startup that needs funding, expect a continued slowdown in financing and do everything you can to extend runway.
✅ Maximize FDIC coverage. Be aware of what is covered and what is not under the FDIC for each account and balance FDIC coverage across multiple accounts- within reason.
✅ Have at least two banking partners with active accounts. Don’t concentrate all funds in one sector specific bank and be sure you can easily move funds from one bank to another.
✅ Be certain that your main payroll provider is diversified in their treasury management.
✅ Know what a sweep account is—the pros and cons—and know that you can control your funds and have appropriate short-term liquidity if invested in securities.
✅ Beware of extra/enhanced targeted phishing and social engineering attacks in the wake of your bank failure.
✅ Talk to your insurance broker about your D&O coverage. Make sure you are adequately covered in the event that your company fails to meet its financial obligations due to bank insolvency or bankruptcy. Ask about your “Side A” Coverage, which provides coverage if the company financially can’t or won’t cover personal indemnification (such as in a bankruptcy).
✅ Ask your broker to review your EPLI coverage. Failure to pay an employee on time can trigger a certain coverage in your Employment Practices Liability Insurance (EPLI). Your D&O and EPLI should function as part of your overall executive liability “suite” of coverage.
✅ Understand your legal liability. Founders, owners, directors, officers, and others acting on behalf of the company who are the targets of lawsuits can have their personal assets targeted. This means the partners/spouses/family of these individuals can be impacted.
Following these steps can help you minimize your downtime, liability, and risk in the event that your business bank becomes insolvent. Visit Anzen.com for more information on executive liability coverages and resources for your business.