March 10, 2023
CNBC recently published an article featuring Mark Williams, Master Lecturer of Finance, discussing the sudden collapse of Silicon Valley Bank and how it will impact companies payroll.
The collapse of SVB, which was ranked 16th in terms of assets at the end of 2022 with $209 billion and over $175 billion in deposits, is different from a traditional brick-and-mortar bank collapse. With more than half of its loans going to venture funds and private equity firms, and 9% going to early-stage and growth-stage companies, SVB clients often store their deposits with the bank as well. Deposits of SVB clients are insured by the Federal Deposit Insurance Corporation, which became the receiver of the company. According to SEC filings, roughly 95% of SVB’s deposits were uninsured as of December. According to the FDIC, insured depositors will be able to access their money by Monday morning, but for uninsured depositors, the process is more complicated. Within a week, they will receive a dividend covering an undetermined amount of their money and a “receivership certificate for the remaining amount.”
“Bank regulators understand not moving quickly to make SVB’s uninsured depositors whole would unleash significant contagion risk to the broader banking system” Williams said.
According to Williams, SVB’s rapid failure could also serve as a wakeup call to regulators when it comes to dealing with banks that are heavily concentrated in a particular industry. According to SVB’s mid-quarter update on Wednesday, which kicked off the downward spiral, startup clients continued to burn cash at a fast clip despite the ongoing fundraising slump. As a result, SVB was unable to maintain the necessary level of deposits. Startups viewed the news as troublesome and fled SVB, a swarm that gained strength as VCs instructed portfolio companies to do the same. According to Williams, SVB’s risk profile has always been a concern.