How Western Alliance and Its Board Navigated a Crisis

Kenneth Vecchione remembered exactly where he was on the Friday afternoon when he learned that SVB Financial Group had taken the huge loss that spooked investors and depositors and led to a deposit run on the bank.

The CEO of the Phoenix, Arizona-based Western Alliance Bancorporation was en route to an emergency root canal when an investment banker called him with the news about the Santa Clara, California-based Silicon Valley Bank’s parent company. Vecchione recalled that he was still reeling from the news while sitting in the dentist’s chair.

“[The dentist] says, Ken, ‘I gotta shoot you up with novocaine,’” he remembered.  “I said, ‘No need, doc. I’m going to be numb for a couple of days.’ And I was.”

Vecchione set off laughter when he shared that on stage at Bank Director’s 2024 Bank Board Training Forum in Nashville this week. But he wasn’t laughing in the moment that it happened: Investors and depositors were looking for any similarities, however tenuous, with Silicon Valley Bank. Many saw Western Alliance as the next domino to fall because it had tech industry exposure through its subsidiary Bridge Bank, which often competed with Silicon Valley Bank.

Roughly $8 billion in deposits flowed out of Western Alliance on the Monday after SVB’s Friday night failure, and another $1.5 billion left the bank that Tuesday. What followed next became a case study in how a bank’s board and management team could work together through a fast-unfolding crisis and come out stronger on the other side.

Western Alliance set the foundation for its crisis response about five years before the actual crisis happened, according to Vecchione. That’s when the bank’s leadership went through the strategic planning process and assessed its growth ambitions. At around $36 billion in assets, management decided they needed to start building the infrastructure needed for a $100 billion bank.

Part of that process entailed looking at the skills its board of directors possessed and figuring out what gaps needed to be filled. The bank used a skills matrix to examine what it already had on the board and what it still needed, a step that many bank boards fail to take, says James McAlpin, a partner at Bryan Cave Leighton Paisner LLP and Bank Director board member, who spoke prior to the event. That’s how the bank’s leadership decided they needed more experienced bankers on the board.

Today, the bank has $80.6 billion in assets and roughly half its 14-person board consists of former bankers. Those directors guided management to beef up its risk management infrastructure and improve its liquidity and capital stress testing as the bank has grown. The bank also upgraded its C-suite with members who had experience at larger banks.

Fast forward to March 2023: Silicon Valley Bank and New York-based Signature Bank failed in quick succession, while First Republic Bank teetered on the brink of collapse. At the same time, Vecchione and his management team met daily with the board, reviewing Western Alliance’s financials and possible next steps.

“We were very fortunate that when this event took place, we had experienced people who had been through the 2007-2008 crisis,” said Chairman Bruce Beach, who joined Vecchione on stage at the event. “The board never crossed the line between governance and management. We always held the position that management needs to make decisions. We were there to try to give them the best advice based on our experience.”

Management continuously sought the board’s guidance and feedback on a number of decisions that ultimately restored depositors’ and investors’ confidence in Western Alliance. “That’s an extraordinary example of a best practice. That’s why you have a board,” McAlpin says. The board is there to support management, he says.

For starters, leadership decided early on that any depositor who wanted to withdraw their money from Western Alliance would get it right away. The bank might try to persuade them to stay, Vecchione said, but he also understood this was a time when people were going to “shoot first and ask questions later” and that he couldn’t necessarily reason with panicked depositors.

“The second rule was, any deals that were going to close that week, we closed them. We always thought we were going to be in business,” he said. “Never once did I ever think that we were going to fail.”

Western Alliance executives paid attention to when other banks were reporting earnings and issued regular updates on its own financial performance, timing those when its liquidity was on a normal upswing. Finally, the bank approached its largest clients and offered them a look behind the scenes if they would sign non-disclosure agreements. “The mere fact that we went out and said, ‘We’ll tell you everything you want to know,’ it made all the difference in the world,” Vecchione said.

In his remarks, Vecchione also echoed a key theme of the conference: the need to cultivate a strong bench of talent to fortify leadership. “Those folks that grew out of the great financial crisis or any other crisis, their bank had helped inform their decision-making,” he told Bank Director after his remarks on stage. “That was very important, making sure we had people that could see the whole picture, understand strategically where we needed to go, and how tactically we needed to get there.”