An update on the news this weekend
March 13, 2023
It's certainly been a hectic last few days so I wanted to share our weekly team email with you earlier than the usual at 8AM on Monday mornings.
It was an almost unbelievable week but not in the conventional sense of the word. In what felt like shades of 08/09, we had the second largest failure of a bank in US history when Silicon Valley Bank shuttered its doors on Friday. This time it hits so much closer to home as SVB was the banking provider to almost half of all venture backed startups. In some respects, a bank like SVB that was so concentrated in technology was doomed from the very beginning whenever there was going to be the slightest hint of trouble. VCs are trigger happy by nature and when it’s their investor’s money that’s on the line, relationships, partnerships, and history go out the window in an effort to salvage what they’ve put in. This was a recipe for disaster for SVB as every major VC fund whether they publicized it or not went to calling and texting their portfolio companies all throughout the end of the week, telling them to pull all their cash out of SVB as fast as they could. And with that, the first bank run of the 2020s was born. Those who weren’t able to pull out their cash in time as of the midnight cutoff last Thursday are left with a paltry $250K in FDIC insurance and the rest of their money will have to wait to be sorted out, an effort that could take anywhere from days to weeks to even months.
In light of the fallout from SVB and the risk to the broader system, we as a company had already taken proactive measures to protect ourselves last Friday. The Servicing team went to work to divide the company’s operating cash sitting at [ ] amongst all the open SPVs that we had both at [ ] and at [ ], our banking partner formerly used for international borrowers, with each maxed out to the $250K FDIC insurance limit. In this way, no matter what would have happened to whichever bank, we would have been fine and our operating company's cash would always be available to us. The foresight proved to be prescient as the contagion spread to others in the industry over the weekend. Given the threat and risk to the entire banking system, the Treasury stepped in over the weekend to ensure that all depositors are made whole. Our swift action internally would have mitigated any of the fallout regardless because of the FDIC insurance coverage but more importantly, this is a strong vote of confidence by the government that they will put their foot down and protect any and all depositors, and critically the US banking system as a whole.
We will know more about what we will need to do operationally once the banks open up on Monday morning and there will be no shortage of logistical and administrative things that need to get done but the good news is many of these pieces have already been put into motion. It's times like these that make us tougher, stronger, and smarter - I know we will rise to the occasion like we have so many times before to do right by our clients and make us better positioned than ever for whatever comes next.
We will be spending today's weekly standup to answer any questions you may have and I look forward to seeing you all then.
