But even if the fallout from the Silicon Valley Bank failure is contained, many questions remain to be answered. Are there other banks linked to the technology industry that are vulnerable to interest rate risk, as Silicon Valley Bank was? If a big bank buys SVB, will it be as friendly to start-ups as Silicon Valley Bank? And after what just happened, will any start-up founder trust their money to SVB or any bank again?
The second lesson is that Silicon Valley Bank’s clientele, who spend so much time online, may have contributed to its downfall.
At most average and midsize regional banks, what happened at Silicon Valley Bank might not have caused a bank run. Banks sell assets all the time. When they face liquidity problems, they raise short-term capital to solve them. Most of the time, customers don’t even know about it or aren’t interested.
But SVB depositors are not normal customers. They’re startup founders and investors, the kind of people who scrutinize banks’ securities registers, pay close attention to risk and volatility, and—most important—talk to each other all day online. As soon as some in the industry began to raise doubts about the solvency of the firm, Slack channels and Twitter profiles were activated with dire warnings from venture capitalists, and before long, many people were afraid.
Would all of this have happened if SVB’s clientele had been made up of restaurant owners and dog groomers, rather than founders of tech start-ups? It’s possible. But it seems unlikely. In this case, SVB’s demise appears to have been hastened by the club-like and herd nature of the industry it served.
The third lesson we can learn from the Silicon Valley Bank collapse is that bank regulation works. On Friday, as soon as it became clear that the bank would not recover, the Federal Deposit Insurance Corporation did what it always does when a bank fails: it stepped in, took control, and tried to compensate the bank’s customers. As a result, customers who had $250,000 or less on deposit in insured accounts will soon be able to access those funds. Hopefully, a big bank will subsume the old SVB without a problem, compensate the larger depositors, and there will be no domino effect: no taxpayer bailouts, no mass start-up failures, just bank failure. simple and neat.
In recent years, certain leaders in the technology sector have characterized regulators and government officials as slow, corrupt and a drag on innovation (some of those same leaders they begged the government to rescue them on Friday).
Source: NYT Español
