The devastating news of the collapse of Silicon Valley Bank is another wakeup call on the fragility of the banking system and the effects for everyone. The fact that the 16th biggest bank in the US, a country with a GDP of $23 Trillion and a tech ecosystem bigger than any other can fail is truly mind-blowing.
The place Silicon Valley itself is the beacon of entrepreneurship & tech innovation second to none, the biggest and best of the tech and social media world have campuses bigger than small towns and yet it’s very delicately balanced and has the ability for a liquidity crisis.
If the 16th biggest bank in the greatest economy in the world can fail at such a speed it begs the question; “how safe is our money in these institutions and how can we mitigate the risks?
In the UK we saw in Sept 2007 the speed in which Northern Rock was brought down by a mix of people queuing to take out their savings and the mainstream press talking up the possibility of a run which like a perpetual snowball rolling down a hill getting bigger and bigger. I wonder how much rumour and conjecture and the tech press in the US had an impact on the misfortunes of SVB. Mismanagement is key as selling bonds due to liquidity shortages spooked investors and customers who bailed out and the run was therefore inevitable.
The ensuing chaos caused by a bank going under is difficult to manage. Yesterday in the US First Republic shares were down 60% as the after affects of SVB failure causes concern about how far it could go and who else maybe next. In the UK we’ve seen HSBC purchase the UK arm of SVB for £1 and yet early stock market readings suggest the markets are unconvinced as the FTSE100 was down 2.3% and HSBC shares already down 3.7% in Mondays trading.
Spare a thought for the thousands of customers who have banked with SVB. Imagine waking to hear the news that your bank has gone and the impact for you, your people, your customers, and families. The fear and panic that must accompany such an event must be heart-breaking and given building and running a start-up is fraught with challenges that large established companies simply don’t have to consider, it must test the strongest of characters resolve.
I hope that the HSBC deal will protect the UK tech scene and the start-ups that banked with SVB and that they can think about how best to de-risk their businesses with different approaches to finance in the future.
US President Joe Biden tried to reassure the markets with a televised address and whilst initial estimates were that it didn't have the positive bump the markets hoped for its seems today the positive news of US inflation reducing combined with the reassuring statements have seen regional banks share prices increase today.
The start up scene prides itself and innovation, dynamism and agility and yet maybe there’s something to be said for the “safety” and security of the “old” banks whose ability to ride some of the toughest economic waves will offer more comfort to some...but is that a good thing?