Silicon Valley Bank was the bank for venture capital firms and tech startups, and this was part of its downfall: Startup customers that hit hard times withdrew deposits, weakening the bank's cash position at the same time that its assets were dropping in value.
The failure of Silicon Valley Bank has
But some observers don't expect SVB's fall to cause trouble for other banks that serve tech companies. American Banker contacted more than a dozen banks for comment, including those with presences in California and that serve technology companies, but all either declined to comment or did not respond to requests for comment.
"Tech banking is of course riskier, but there are some banks that are well-designed to do it," said Jay Reinemann, general partner of Propel Venture Partners, in an interview. "They understand the risk of doing it."
A major risk lies in the fact that leaders in the tech industry are constantly on Twitter and other forms of social media "and they're quick to react based on what they're reading, and it's not necessarily always well-informed," he said.
Eric Compton, an equities strategist at Morningstar, noted on Friday that no one under his coverage, which includes the four largest banks in the U.S. and the roughly 11 largest regionals, has the same business model as SVB, "and because no one else has quite the level of unrealized losses on their securities, they don't have that ticking time bomb sitting on the balance sheet," he said in an interview Friday.
On Monday, he theorized that banks may think twice and check in more with early stage, venture capital-backed companies, because of the high-risk environment.
"The lending will still happen, but will be more strict," he said via email.
Kevin Heal, chief compliance officer and senior analyst, financial services at Argus Research, said in a Friday interview he expected the contagion from Silicon Valley Bank, which had $212 billion of assets and was based in Santa Clara, will be mostly limited to West Coast banks that do a lot of tech business, like First Republic and East West Bank.
The way California banks have been affected by the crisis set in motion by Silvergate Capital and Silicon Valley Bank reminds Vern McKinley of the 1980s, when regional instability affected banks in Texas, Louisiana, California and Massachusetts.
"In the digital age, you would think we wouldn't have that type of rolling regional instability, that's kind of a bygone issue," said McKinley, an independent bank examiner. "But this seems to be concentrated in California and it's kind of a weird situation."
McKinley was a bank examiner in Texas in the late 1980s, when about 100 banks failed.
"It is really quite something when you think now that we haven't had much in the way of instability since maybe about 2012 or so," he said. "And no banks failed throughout the pandemic period. You kind of worry when there are no failures at all. It's kind of a creepy situation because you'd think in a capitalist economy that you'd have the ups and downs, that there should always be some, some failures here and there."
Jason Henrichs, CEO of Alloy Labs, a consortium for community banks that also invests in startups, observes that the problem is not about banking technology startups, but the fact that a high concentration of Silicon Valley Bank's depositors moved money in and out in large sums.
"If there are other banks out there that tend to have their deposit bases driven by customers [with the same characteristics] they would face the same issue," he said. "Venture capital is one of those."
