Second, it’s possible that Silicon Valley Bank’s extremely online clientele may have contributed to its downfall.
Kevin Roose and Casey Newton are the hosts of Hard Fork, a podcast that makes sense of the rapidly changing world of technology. Subscribe and listen.
At most normal, midsize regional banks, what happened at S.V.B. probably wouldn’t have led to a panic. Banks sell assets all the time. They run into liquidity problems and raise short-term capital to solve them. Most of the time, customers never notice or care.
But S.V.B.’s depositors are not normal customers. They’re start-up founders and investors, the kinds of people who scrutinize banks’ securities filings, who pay close attention to risk and volatility and who (most importantly) talk to each other on the internet all day. Once a few people in tech raised questions about the firm’s solvency, Slack channels and Twitter feeds lit up with dire warnings from venture capitalists, and soon many people were panicking.
Would all of this have happened if S.V.B.’s clientele had been made up of restaurant owners and dog groomers, instead of tech start-up founders? Possibly. But it seems unlikely. In this case, S.V.B.’s demise seems to have been hastened by the clubby, herd-following nature of the industry it served.
The third lesson we can draw from S.V.B.’s collapse is that bank regulation works. As soon as it was clear on Friday that S.V.B. was going under, the Federal Deposit Insurance Corporation did what it always does when a bank fails — it swooped in, took over and started trying to make the bank’s customers whole. As a result, S.V.B. customers who had $250,000 or less deposited in insured accounts will be able to access those funds quickly. With any luck, a big bank will subsume the old S.V.B. seamlessly, make its larger depositors whole, and there will be no domino effect — no taxpayer bailouts, no mass start-up failures, just a simple and orderly bank failure.
In recent years, a certain set of tech leaders disparaged regulators and government officials as slow, corrupt and a drag on innovation. (Some of these same leaders begged for government bailouts on Friday.)
But because Silicon Valley Bank was mostly an ordinary bank — not some unregulated crypto casino or risky fintech start-up, where investors and deposits might have no recourse if their money disappeared — its failure will, in all likelihood, be more of an inconvenience than a long-term crisis.
If that happens, Silicon Valley will have regulation to thank for its survival.