Mitigating the Supply Chain Impacts of a Banking Crisis

What’s your plan if your key supplier’s bank collapses?

Procurement and supply teams have had to cope with successive waves of economic and supply chain disruption over the past few years — pandemic lockdowns, port congestion, the war in Ukraine, high inflation. The latest potential challenge to global supply chain resilience is bank failures. The mid-March collapse of Silicon Valley Bank (SVB), a major lender to startup companies, triggered fears of subsequent failures across the broader banking system, imperiling the deposits and financing of perhaps millions of businesses around the world.

A banking crisis would give procurement teams yet another reason to worry about the adverse impacts of supply problems on business continuity. What happens if some of your key suppliers lose access to their banks? 

A Multi-Tier Supply Problem

This scenario is effectively a multi-tier supply chain issue – your supplier’s financial institution is an important supplier for their payroll and payment processing services, and perhaps also for lines of credit and other financing. If those services are abruptly cut off, impacts on “the real economy” would be dire. If your supplier can’t pay its employees or its own suppliers – and if it loses access to funds needed to make important investments in things like equipment and materials – that supplier’s viability as a business is suddenly very much in question. 

The suddenness of this type of event is what makes it so difficult and disruptive, and harder to mitigate. In the current economic climate of high inflation and rising interest rates, certain financial institutions may have been struggling for some time, and those struggles may or may not have been on the radar screens of business leaders and risk management professionals. But in general, we don’t expect financial institutions to become unviable between one day and the next.

This is why governments often step in in the wake of a bank failure to ensure that depositors and others relying on the services of that bank are able to sustain themselves. But whether it’s government taking over and making everybody whole, or a private entity acquiring the assets of a failed bank (as happened with Signature Bank, the second bank failure following SVB’s), the aftermath often spells a period of disruption for the bank’s customers. Less disruption, certainly, than the bank ceasing to function, but now the bank has new leadership and new direction that could translate to process changes and operational hiccups for customers – including your supplier.

If your supplier can’t pay its employees or its own suppliers – and if it loses access to funds needed to make important investments – its viability is suddenly very much in question.

The Necessity of Preparation

It can be hard to know where these ripples of change within the supplier’s financial institution will be felt. Will the supplier be able to continue making key payments with the same efficiency over the longer term? The hole in the dike may have been plugged, but how long can you trust the patch? What if the supplier starts to experience production delays and you start missing deliveries? Can you afford to wait out this period of disruption? Can you yourself provide some assistance to your business partner, or do you need to make a quick pivot to mitigate the impacts to your own continuity?


In a forward-looking supply organization, contingency plans based on data-driven risk modeling would have been created ahead of time to help the organization weather critical risk events with far-reaching impacts. The pandemic should have been the wake-up call for procurement and supply leaders to recognize the necessity of anticipating and preparing for disruption. Frankly, even with a crystal ball, it would be hard to see an event like the SVB failure coming; but it should have been clear to supply management professionals that macroeconomic trends were intensifying the stresses on financial institutions.

Those stresses may yet result in a larger banking crisis. Experts have been voicing concern about a handful of regional banks that took similar risks to the failed ones and could be on the verge of collapse. And then there’s Credit Suisse, the global investment bank that had to be rescued with a Swiss-government-orchestrated takeover by rival UBS. At this writing, that merger has yet to play out, and its impact on worldwide finance – including the question of whether it will help prevent further upheaval in the global financial system -- is not yet known.

What You Can Do Now

So what can procurement and supply teams do to be better prepared for the disruptive impacts of additional bank failures on their supplier portfolios? Here are three practical, achievable suggestions:

  1. Pursue better visibility into your suppliers’ financial situation. Good-quality supplier data can provide a multi-tier supply chain view that includes the financial institutions your suppliers rely on. This isn’t necessarily considered sensitive, confidential information, like some other types of second- and third-tier supplier intelligence. From an operational perspective, basic financial services are commoditized to a limited degree, so revelation of those relationships isn’t viewed as inappropriate. Having that illumination is the first step to understanding how to mitigate the impact of an adverse change in the supplier’s financial status.

  2. Don’t wait to ask questions that will inform your risk strategy. If you suspect that your key supplier’s bank is unstable, you need critical information from that supplier: How exposed is their business to that bank, either directly or indirectly? What mitigation steps have they taken? Do they have accounts with alternate banks where they can shift capital and business? What percentage of their working capital is “above the limit” in FDIC accounts and what steps have they taken to mitigate that risk?   

  3. Solidify your rapid-response strategy to ensure business continuity. While you may not like having to switch suppliers, it may be a necessary step to maintain your supply chain for essential parts, materials, or services. A mature supply organization should have current, accurate data on alternative suppliers that can be quickly engaged for this purpose. When you have a reserve of pre-approved vendors you can switch to, combined with a streamlined onboarding and engagement process, it’s easier to avoid disruptions to your operation. 

Predicting the collapse of a specific bank is extremely difficult to do, but identifying higher-probability, impactful risks to supplier stability is very much in the realm of the possible. It may be unclear right now how the upcoming months will unfold, but it seems likely that high interest rates will continue to drive struggles in the financial sector. The best way to shield your supply network is to have a contingency framework at the ready, informed by accurate data, good supplier communication, and a commitment to better supply chain resilience. 

Learn more about how Dun & Bradstreet helps you improve supplier risk management and build more resilient supply chains.