The federal government acted quickly and decisively when Silicon Valley Bank failed, allaying the fears of at least one St. Louis investor.
SVB, which catered to startups and the tech industry, collapsed partly because its customers rushed to make withdrawals after a call to raise $2 billion in capital was announced, according to media reports.
“By the end of the day, the government said all deposits will be backed whether they were below or above the order,” said St. Louis University Professor Jerome Katz. “Having lived through the 2008 crisis, I could easily imagine how bad things could get. So, I think for all the people who had been active in 2008, there was a moment of heightened panic.”
The moment of panic passed when regulators intervened by taking control of SVB’s assets.
“They're making the money available,” Katz told the St. Louis Record. “The bank will have enough money from their own accounts and what they get from the FDIC to cover the normal and even perhaps abnormal withdrawals.”
In addition to being the Robert H. Brockhaus Endowed Chair in Entrepreneurship at SLU, Katz is an investor in an accelerator portfolio consisting of some 70 businesses. Five of the businesses had SVB connections.
“Many St. Louis accelerators actually have recruited nationally and so there are a number of companies in St. Louis accelerators that come from the West Coast, San Francisco, and the Silicon Valley area,” Katz said in an interview. “They're more likely to have SVB connections.”
There are 98,000 small businesses in the greater St. Louis area, according to SLU data, and the number of new businesses is about 15,000 to 20,000 per year.
“If ten of those had SVB relations, I would be surprised,” Katz said. “There is another class of local company that might have SVB connections because they were looking for specialized banking services that are more readily available in Silicon Valley.”
The St. Louis Business Journal reported that Benson Hill and Clever Real Estate are two examples of St. Louis-based businesses that had relationships with SVB because they were looking for a particular kind of financing, and SVB had it.
“Bank failures are relatively rare and SVB is famous for making venture debt loans, which is a very specialized kind of loan that very few banks make,” Katz added. “SVB is among the most innovative of banks in one of the most innovative areas in the world but innovation has a higher chance of failure than sticking to the old tried and true.”