Late last week, the news that SVB – one of the greatest supporters of the tech ecosystem here in Massachusetts and around the country – was heading into a financial freefall caused a great deal of turmoil. Many investors and founders had to make difficult decisions to pull their deposits or ride out the storm. What ensued was a convergence of unfortunate circumstances and a significant volume of withdrawals, leading to the FDIC takeover.
We know this is not just a blip in the system and that impacts will be felt for some time. As the largest tech organization in Massachusetts and a part of the Technology Councils of North America (TECNA), we want to do anything we can to get the voice of the tech companies heard.
And, so, on Sunday afternoon, I reached out to our MassTLC member company CEOs asking them to share what could have and should have been done differently and if there were policy or regulatory changes that they felt were necessary. Below are the responses that I received. I have kept the respondents anonymous and grouped their thoughts into broad categories.
BUSINESS ADVICE
- Concentration is dangerous, for everyone. CEOs need to ensure that our company’s moneys and processing are not all concentrated in one bank – just as we need to follow the maxim that no single customer should be more than 5% of our business. Similarly, bank CEOs need to not be concentrated in any one sector – like VC-backed companies – either!
- It’s a stark reminder for entrepreneurs to spread their money around to multiple banks. This is a self-inflicted tragedy and it underscores the need for depositors (and investors) to pay closer attention to the balance sheets of the banks with whom they do business.
ECOSYSTEM INITIATIVES
- We need a new start-up specialized bank, but HQ’d in New England and with east coast risk sensibilities.
REGULATORY NEEDS
- Three areas, include:
– FDIC insurance levels should be different for business vs personal. Maybe tied to 3 months of operating expenses?
– Debt funders should not be able to require all commercial banking be done with them as a condition of financing, although maybe some
– Executives and boards should be able to invoke an emergency clause to move funds without lender permission. Many were slow to act waiting for lender approval and in some cases, it was SVB.
- I would say first, praise the quick response and decision of treasury and the FDIC. Second, significantly raise the deposit insurance Amount from $250k.
- In my opinion the regulators failed and are in part responsible for this debacle. They are the ones who are supposed to be protecting depositors and investors and they failed the test.
- Not the first, not the last bank failure. This one was shocking in the speed given the interconnected customer base.
- Beyond general regulation to prevent this in the future, one very important pragmatic step would be to require release of all funds used for payroll. The $250k cap was wholly insufficient for most companies. At a minimum, employees need to get paid whatever else happens.
- It should be prohibited that venture debt lenders require ALL cash to be held at their institution.
- We believe that startups should be the ones taking risks and innovating, not our banks. Banks need stability. SVB was the 16th largest bank in the United States based on its assets under management. Any bank in the top 50 largest should be subjected to stress testing and everything else that was previously applicable under Dodd-Frank before it was rolled back to exempt banks like SVB. This change was a mistake and even regional banks should be subject to the same regulation and oversight as large, complex financial institutions.
- It appears to me the banking system and regulations are working as intended to protect customers of the bank. Undoubtedly, there will be company failures as a result of uninsured balances being unavailable to the firms for some period of time. Like any supplier there is a trust relationship between firms which unfortunately in this case SVB compromised through a series of poor operational decisions.
- Tough times indeed. I’m hopeful the government can work to find a buyer to support all of SVB’s clients in covering their uninsured deposits this week. But what immediately comes to mind is more banking regulation, although that has its pros and cons.
- All the regulations are in place from the 2008 collapse, may be smaller banks may require more liquidity to prevent a bank run. I think the portfolio managers at SVB were asleep on the wheel – lack of diversity in investments, did not process or plan the interest rate hikes on the newer treasury bills over the last several months to prepare enough on long-term assets in the books. They could have barrowed instead of trying to sell-off the treasury bills. Again, I don’t know enough about that.
- Regulation viz, may be FDIC amount has to be increased again from $250k. But, then, the Feds would never allow a bank run as you can see how they reacted to protect the faith in the banking institutions for the depositors.
- We need to help companies push back on requirements that all money has to be maintained in a single back (which is often a condition of loans). I suspect the events of these past few days may have already emboldened companies’ ability to do this but if it is met with resistance, then it could be regulated so as to avoid these fragile situations.
