Silicon Valley Bank one year later

Flash back one year ago and it felt like the U.S. financial sector was teetering on a meltdown. A series of prominent banks—most notably Silicon Valley Bank (SVB)—had succumbed to a run of withdrawls, and people at the top level of government were scrambling to prevent broader contagion. Fortunately, a decision to remove the cap on federal deposit insurance calmed the markets and things went back to normal. Sort of.

As the Financial Times reports, nothing has really replaced Silicon Valley Bank, which in ways behaved less like a bank and more like the VC firms and tech startups it served. While a host of other banks have sought to claim SVB’s tech-friendly mantel, they have proved more risk averse and bureaucratic than the institution that banked generations of the biggest startups:

The landscape for day-to-day banking of the venture capital ecosystem is more competitive than before SVB failed. But the core of the bank’s role was its high-risk appetite for underwriting loans to pre-revenue or lossmaking start-ups based on the strength of their venture capital backers and the likelihood they would continue to invest.

Despite the flood of new options, fledgling technology companies are in some cases struggling to get the same access to capital that powered the booming venture market for two decades. None is as appealing as the “one-stop-shop” linchpin to the venture community SVB had been.

Meanwhile, none of the firms vying for SVB’s customer base, including First Citizens and HSBC, have sought to replicate their predecessor’s policy of requiring clients to do all their banking with them. This suggests that, for better or worse, we’re unlikely to see the emergence of a dominant bank run by and for Silicon Valley.

As for crypto companies, recall how Sen. Elizabeth Warren (D-Mass.) and others sought to make them a scapegoat for the broader bank meltdown—even though blame lay with the banks’ own management, which got caught flat-footed by a surge in interest rates. It was also ironic given that crypto firms, Circle in particular, were hurt along with everyone else by SVB’s poor management decisions. In any event, the crypto industry has found a new, more low-key banking partner based in the hinterlands of Pennsylvania.

If we’re searching for lessons from the Silicon Valley Bank debacle, the Wall Street Journal has a good look-back that challenges some of the conventional wisdom about the crisis. This includes the idea that the bank runs last year (big names like Signature and First Republic also failed) happened in part because online banking meant customers were able yank their deposits at unprecedented speed. Instead, it turns out that electronic withdraws are not exactly a new thing, and that it wasn’t tech savvy startups that led the bank runs—instead it was “major corporations” that were first to head for the exit.

Finally, the Journal points out that new rules to prevent another crisis are still unfinished and that one of the challenges lies with identifying banks’ “quality deposits.” The paper also suggests that money from cryptocurrency firms and those tied to venture capital might not meet that standard—yet another reminder that tensions between crypto and traditional finance are far from resolved.

Jeff John Roberts
jeff.roberts@fortune.com
@jeffjohnroberts

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