Will the Silicon Valley Bank fallout reach Aussie shores?
The collapse over the weekend of Silicon Valley Bank (SVB) sent ripples around both the startup world and the financial industry at large.
The bank served a specific clientele of startups and their VC investors with deposits tripling over COVID to US$189 billion.
It all came to an end though when investors became spooked by its lack of solvency and began a run on the bank until the Federal Deposit Insurance Corporation (FDIC) took control.
The FDIC attempted to stem the bleeding and told the bank's clients that they would get their full deposits back, for many this figure is well beyond the US$250,000 bank guarantee.
Don't call it a bailout, though, as both the bank and its investors will take a loss and the US Treasury Department is stressing that the recovery money is from a fund that banks rather than the taxpayer pay into.
Some ASX-listed companies including Life360, Redbubble and Freelancer had accounts with SVB with Life360 chief financial officer Russell Burke telling investors that the move by the regulators would ensure they kept their cash.
Angel investor Alan Jones says it is important to note the distinction in how the money will be repaid.
"It was critical to act fast as officials knew they needed a plan before the markets opened on Monday," says Jones.
Not that the plan necessarily helped, with US banks losing around US$90 billion in stockmarket value on Monday while even here in Australia, most of the major banks fell by more than 1% on Monday's trade.
So, should Australian investors be wary? Could the same thing happen on these shores?
Jones says it's unlikely because of the way major banks are set up here and how they operate.
"It's difficult to assess the impact of the SVB collapse on the Australian market, but there's not a risk of a similar style bank run or collapse among our banks," says Jones.
Jones says part of the issue for SVB was that its portfolio was all tied into the startup community it served, which wasn't the case here.
"A lot of Australian banks are tied up in residential property and it's been a long time since that took a fall, plus we have tighter regulations and banks must keep a lot more of their capital dry," he says.
Partner and chief impact officer at SDGx Zarmeen Pavri agreed saying Australia was the gold standard when it came to the banking sector.
"Everything from our facilities to the prudential requirements and capital requirements is different so it does reduce the risk," she says.
Despite this, there has still been some downstream impacts even among startups that didn't bank with SVB, says Pavri.
"Someone on our books had money with another bank that had exposure to SVB, so we are likely to see more of this as time passes," she says.
The danger going forward was that startups are encouraged to access the US market but there is risk in that.
"When you go into the US markets you need to assess the requirements and there is a different level of risk. Right now the market is in firefighter mode but when that dies down it will be interesting to see what is learnt," says Pavri.
Australian treasurer Jim Chalmers told Australians the government was working with groups to understand any implications for Australia that may follow on from the SVB collapse.
"Australians should be reassured that we have a resilient, well-capitalised banking system that has strong liquidity coverage," says Chalmers.
For everyday Australians, though, the collapse of SVB could spell good news with economists now softening to the idea of a rate pause.
RBA governor Philip Lowe flagged last week that he could hold rates steady at the April meeting if upcoming data were softer, and now economists say the collapse of SVB could give them another reason to pause.
As a result of the crisis, economists expect a 72% chance the bank will keep rates on hold, up from 52% last week, while market pricing for the peak cash rate has softened to 3.9% from 4.1%.
AMP Capital's head of investment strategy Shane Oliver says the market is still nervous and it could be hard to justify a large rate hike, from either the US or Australian central banks.
"If it turns out to be a storm in a teacup and it's over in a week, then the Fed next week will return to what it does, which is looking at data and contemplating a 25 or 50 basis point increase in rates," he says.
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