The last few weeks have seen a lot of press coverage about the fall of Silicon Valley Bank (SVB), and understandably so. After possibly the quickest bank run in history, similarities drawn to the collapse of Northern Rock – which signalled the beginning of the 2008 financial crash – were inevitable, and so too were questions surrounding the overall health of the global economy.
Whilst it’s unlikely that our members will have managed to miss what happened entirely, some of us may be a little hazy on the details, so we’ll briefly outline what happened, below. Readers who would like a more comprehensive account, however, should head to Investec’s article, here, where their Head of Investment Strategy, John Wyn-Evans, offers an in-depth explanation of the situation.
A quick recap
From the beginning, SVB differentiated its value proposition by positioning itself as the bank for high-growth tech companies. This strategy was largely successful for a few years, with the bank attracting a myriad of valuable depositors, but after the economic situation tightened over the last 18 months – with capital becoming much harder to come by – the bank started to encounter significant challenges.
Where deposits largely dried up, withdrawals continued at the same – or potentially an increased – rate, with existing clients still needing to access their funds to operate and grow their businesses. Eventually, SVB realised that to fulfil these withdrawals, it would need to liquidate some of its investments, and in doing so, they incurred a loss of $1.85bn.
This caused significant concern amongst SVB’s customers, who thought the bank was in trouble, and rushed to withdraw their money in droves. As John Wyn-Evans writes in his detailed account of events, “The cat was out of the bag, and it [SVB] was overwhelmed by clients wanting to take out more cash than it could get its hands on.” And so, on the 10th of March 2023, SVB was closed by the California Department of Financial Protection and Innovation.
Whilst the failure of SVB has certainly caused a lot of concern throughout the financial ecosystem – particularly within the banking and business communities – we can take confidence from the assertions of major banks, such as Investec, who insist they do not expect further catastrophes of this magnitude in the near future. “We do not see the same mismatched duration risks in terms of bank balance sheets in the UK and Europe, nor within the ‘too big to fail’ banks in the US”, they stated.
But what does this all mean for business owners? Should they sit tight, or should they adjust their strategies? To find out, we reached out to Mr Wyn-Evans to ask for his Three Things – three pieces of actionable advice for business leaders pondering how to navigate the SVB bankruptcy: