WTF, SVB?

There I was last Wednesday, typing up our March announcements, fully expecting to be writing this particular newsletter about Women’s History Month, International Women’s Day, Women’s Equal Pay Day, and all those things that we’re supposed to “celebrate” this month. Then the financial world blew up. So instead of giving you all my feelings about this month, I’m instead going to write about what’s on most of our minds: what happened at SVB and where do we go from here. As it turns out [insert expression of sadness, but not surprise], this topic is not without a discussion of equality and who gets blamed when things go wrong. 

What happened?  

In short, there was a bank run. Yes, SVB had some mismatched assets. They had Treasuries they had to hold for a long time matched up with on-demand depositor funds that venture-backed companies were pulling out at a high rate (because fundraising has been tight). Then they had to sell some of those Treasuries to cover deposits, and since interest rates had gone up, they had to sell them at a discount. Okay, fine. Stupid, but these things happen. These things alone don’t necessarily doom a bank. The real problem was the panic that was sparked when a number of huge VCs with large portfolios of venture-backed companies told all their companies to pull their funds from SVB. Then there’s the fact that your depositor bank is in the Silicon Valley bubble, where things spread like wildfire across Twitter and about a zillion Slack channels. 

No bank is immune to a bank run. No bank just sits on its depositors’ funds waiting for them to pull them back out. If they did that they wouldn’t make any money. Banks pool all those deposits and then invest them into things that are almost always much less liquid than a checking account. Like George Bailey so eloquently explained: 

No, but you... you... you're thinking of this place all wrong. As if I had the money back in a safe. The money's not here. Your money's in Joe's house right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others. Why, you're lending them the money to build, and then, they're going to pay it back to you as best they can. Now what are you going to do? Foreclose on them? 

This is where those VCs I just mentioned step into the shoes of the cranky guy who, unmoved by George’s entreaty, insists on withdrawing all of his $242. So it wasn’t so much that SVB imploded due to fraud or something else that would have caused the bank, on its own, to crash. Yes, the bank was insolvent, but the immediate cause of the real chaos was the run on deposits. If there hadn't been a run, it's possible the bank would have recovered.

Where do things stand now? 

The federal government stepped in pretty quickly and has now assured all depositors they will be getting their money back. From what we’ve heard (or, more importantly, haven’t heard lately) from our clients, the funds are back in people’s accounts and fully accessible. The things that still seem to be up in the air are wires that were initiated Thursday or Friday and seem to have been lost in the ether (not yet landing at the receiving bank, perhaps because the funds never left SVB) and lines of credit from SVB that companies are still trying to draw from. Our expectation on the former is that this will all be ironed out in the next week or so. Our expectation on the latter is that these may take longer to figure out and may depend on whether someone buys SVB. 

Unfortunately, SVB’s situation does not stand in isolation. One other bank closed (Signature Bank) and a number of banks have seen their stock prices pummeled. As I’m writing this, some of the major banks are in discussions about how to save First Republic. 

Where do we go from here? 

After this stark reminder of the FDIC insurance limit of $250,000, plenty of companies are wondering how they should manage their accounts going forward. The advice we keep hearing is to hold multiple accounts (so you can easily transfer funds if necessary) and, if possible, to try to avoid holding any particularly large sums in one place for extended periods of time. There are also options like sweep accounts that may carry higher insurance limits. Many companies are also taking a harder look at the risk profile of their banks and moving funds to banks that are either much larger or have much safer and more diversified balance sheets. 

Who's to blame? 

Now we come to the part that, you guessed it, relates to women and why it’s still necessary to set aside 8.3% of the year to celebrate 51% of the U.S. population. We all have a general sense of who caused the SVB failure: one or more SVB executives and, possibly, a handful of large VCs. Looking at the SVB executive team and the VCs who initially started the bank run, you might wonder how anyone could possibly put the blame on women. I mean, you’d really have to stretch to do that, right? But that’s never stopped people before!  

Some are blaming SVB’s demise on its “distraction” with diversity. SVB had a diverse Board that included (gasp) women, people of color, members of the LGBTQ+ community, and veterans. According to some people, who are incredibly dim and/or desperate for attention, this may have been the cause of SVB’s collapse. Right. I’m not linking anything here because I don’t want these articles to get any more play, but I am mentioning it because this is a real thing, real enough that it’s being discussed in articles in the WSJ and the New York Times. Puke. 

We continue to be going through a period that feels particularly risky and we have learned from past experience that when things are “risky,” lots of investors avoid “high risk” investments (read: investments in women and people of color . . . which are statistically lower risk, but whatever). Let’s not do that this time. Let’s not see the sad, sad figures around investments in diverse fund managers and diverse-led startups fall again in 2023. Let's instead have a year that makes us believe that, one day, we won’t need separate months to acknowledge the contributions of the large swaths of people who have historically gone without acknowledgement.  

I guess this is where I say, Happy Women’s History Month. 

--Jessie Gabriel

P.S. In case you're interested in reminiscing about the days before banks started to meltdown, you can catch me here on the Beyond Capital Podcast with Eva Yazhari and Ed Stevens. If you haven't checked out their podcast before, it's a highly recommend.