Silicon Valley Bank was ‘the Startup Bank’. They took in a lot of cash from venture-backed companies, SPAC companies, and more. They did very little retail business, in fact less than 3% of their accounts had under $250,000.
That meant when the bank saw money flowing out – not as many venture deals in a high interest rate environment – and they had to sell assets and recognizes losses (also because of those high interest rates) they were no longer a solid institution. There was a run on the bank, they had to sell more assets they’d intended to maturity, and recognize more losses.
Just Monday they were one of ‘America’s Best Banks’ although I’m not sure that’s a story of how quickly fortunes change as much as how quickly Forbes has.
Proud to be on @Forbes' annual ranking of America's Best Banks for the 5th straight year and to have also been named to the publication's inaugural Financial All-Stars list.
— SVB (@SVB_Financial) March 6, 2023
Thursday night, right before being closed by California regulators and turned over to the FDIC, they were hosting a fancy dinner in my town for South By.
Live reporting from the SVB SXSW dinner. Steaks being served. Haven’t been asked to go Dutch yet. pic.twitter.com/tDgdTk16aY
— Jake Chapman 🇺🇸🚀 ✨🇺🇸 (@vc) March 10, 2023
Silicon Valley Bank’s situation is unique. They are a classic story of taking in short term cash, and putting the money into long-term bets, and then not having the cash when customers came calling (or meeting regulatory requirements). They were a victim of high interest rates and a concentration of risk in a single industry, which was no longer depositing money and which wasn’t borrowing from them significantly either.
By Monday there’s a reasonable chance that Silicon Valley Bank will be taken over by another bank, and even that uninsured deposits will be made whole. In any case, depositors will have access to cash soon.
However there’s one way in which this spills over… maybe not into other banks, but to miles and points?
Apparently online startup-focused bank Brex is seeing such an inflow of business from Silicon Valley Bank companies opening accounts that they’ve decided they don’t need to pay out as much in rewards. And they’ve gone ahead and devalued their points, without notice, not just for new accounts but for all of their existing accountholders. That also reduces their liabilities, too.
- Instead of 1000 points transferring to 1000 miles with airline transfer partners, it now takes 1670 Brex points for 1000 airline miles.
- They’ve also devalued statement credit and crypto redemptions by 40%.
JT Genter notes that travel portal and gift card redemptions haven’t been devalued (perhaps yet). Mastercard and Amazon gift cards still cash out at 1 cent per point.
The whole problem right now is trust in the banking system which causes runs, and the beneficiary of a lot of Silicon Valley Bank’s problems is… undermining trust. Seriously?
If you had an account at Silicon Valley Bank, here’s a twitter thread of advice, to which I’d add: don’t bank with Brex. There are plenty of institutions that will serve venture-backed startups (well, maybe not so many if you’re in cryto).
3. Schedule a Daily Cash Management Crisis call for 10am every day. CEO to chair
4. Redirect any future cash receipts / revenue into non SVB accounts. Don’t throw fresh money on the fire.
5. If SVB is your only current bank. Open accounts with 2 other AA or A rated banks.
— The Secret CFO (@SecretCFO) March 11, 2023
I’m glad I used up my 210,000 Brex points last year when they fired customers outside of their core demographic.