March 20, 2023

Second, Silicon Valley Bank’s hyper-online customers may have contributed to its downfall.

Kevin Roose and Casey Newton are the hosts of Hard Fork, a podcast that provides insight into the rapidly changing world of technology. Subscribe and listen.

For most normal mid-sized regional banks, what’s happening at SVB probably won’t cause panic. Banks have been selling assets. They have liquidity problems and raise short-term funds to solve them. Most of the time, customers never notice or care.

But SVB’s depositors are not ordinary customers. They’re startup founders and investors, the kind who scrutinize bank securities filings, keep tabs on risk and volatility, and (most importantly) talk to each other on the internet all day long. Once some in the tech world questioned the company’s solvency, Slack channels and Twitter feeds flooded with dire warnings from venture capitalists, and soon many panicked.

Would all of this have happened if SVB’s customers were restaurateurs and dog groomers instead of tech startup founders? Maybe. But that seems unlikely. In this case, the demise of SVB seems to have been hastened by the club, go with the flow The nature of the industry it serves.

A third lesson we can learn from the collapse of SVB is that banking regulation works. On Friday, once the news of SVB’s bankruptcy became clear, the FDIC did what it usually does when banks fail — it swooped in, took over and began working to restore the bank’s customers to health. Therefore, SVB customers who deposit $250,000 or less in insured accounts will have quick access to those funds. With any luck, a major bank will merge seamlessly into the old SVB, leaving its larger depositors intact, and there will be no domino effect – no taxpayer bailouts, no massive start-up failures, Just simple and orderly bank failures.

In recent years, certain technology leaders have disparaged regulators and government officials as slow, corrupt, and a drag on innovation. (some of the same leaders ask for a government bailout on Friday. )

But because SVB was primarily a regular bank — not some unregulated crypto casino or high-risk fintech startup where investors and money deposited there might have no recourse if they disappeared — its collapse More than likely, there will be a long-term crisis of inconvenience.

If that happens, Silicon Valley will have regulation to thank for its survival.

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