Updated: May 16
The first half of 2023 hasn’t been the most auspicious for banking. The Silicon Valley Bank (SVB) collapse back in March shook the tech world and continues to have ripple effects on the global economy (though the stock market held firm). Shortly after that, Signature Bank in New York took a dive. And now, just barely into the month of May, the collapse of First Republic Bank has become the second-largest bank failure in U.S. history.
While SVB and First Republic Bank are headquartered in California, and Signature Bank is in New York, these instabilities in the financial system and people’s trust in it aren’t isolated to a single region. Individuals and businesses from all over—Boston included— place their trust and earnings in these institutions. And with uncertainties and losses looming, affected businesses are seeking a way out. Let’s analyze the impact of the crash and the way forward, particularly for Boston businesses.
When a bank’s bottom falls out, the businesses with the largest investments in them take the biggest hits. Regulators shut down SVB on March 10th after its investment value plummeted, leading to decreased deposits and panic withdrawals. In what would be the largest bank failure since 2008, the SVB bank collapse took down many institutions, and Boston companies appear to be some of the most impacted. Most of these companies include startups in the tech industry and other small banks. Others are non-profits, housing developers, and manufacturing companies. For instance, the stocks of many small banks in the Boston area continued to fall on the day following the SVB bank collapse. The result was reduced interest rates, but on the bright side, mortgage rates may fall.
Some companies affected by the Silicon Valley Bank crash (generally speaking, not Boston-specific), include:
The streaming company is believed to have held $487 million with the Silicon Valley Bank, amounting to approximately 26% of its cash deposits. These deposits were largely uninsured, and it is unclear how much of its deposits Roku will eventually recover.
However, company officials indicate that the company has enough funds to meet its financial obligations for twelve months.
After SVB collapsed, this payment technology giant announced on Twitter that it held assets with the bank. These assets amount to around $3.3 billion of its multi-billion-dollar crypto reserves. However, the company assured its customers that it would continue regular operations, as its account with SVB is one of the six that it uses to manage some of its USDC cash reserves.
Following the SVB collapse, the global virtual gaming platform filed a report with the Securities and Exchange Commission (SEC). In this report, the company claimed it held 5% of its $3 billion in cash with Silicon Valley Bank. However, it indicated in the filing that regardless of the outcome with SVB, the company’s daily operations will be fine. On the Monday following SVB’s Friday crash, Roblox stocks grew 2%, valued at $40.92.
Etsy, the popular online eCommerce platform, had sent an email to news outlets on the day the bank collapsed, announcing delays with some of its deposit payments. The company confirmed that these delays were connected to the SVB collapse and that it could not pay its sellers.
The platform hosts traders of vintage items and other supplies and connects millions of buyers to sellers worldwide. Its stocks dropped about 3% to trade at $102.84 on Monday, March 13 after SVB’s March 10 collapse.
For Boston-based businesses, these recent bank collapses have had and are bound to have long-term effects on their operations. Because it’s so recent, it’s hard to say exactly what the First Republic failure will mean for Boston businesses That said, we now have a clearer picture of how the SVB collapse affected Boston businesses, which may give us a clue about what to expect from these other failures—outcomes include:
Fewer Lending Opportunities for Tech Companies
The fall of Silicon Valley Bank may cause a ripple effect on tech companies. Worried customers began pulling out their money from smaller regional banks following the bank collapse. The most affected banks were those with investments in technology, like SVB. Although small banks are the most affected, bigger financial institutions may begin rejecting loan requests from tech companies.
Uncertainty in the Affordable Housing Market
Another area impacted by the Silicon Valley Bank collapse is the affordable housing market in Boston. While it was still in operation, Silicon Valley Bank invested about $209 billion and loaned around $1.6 billion in efforts to support the affordable housing sector. But since the bank collapsed, the Federal Deposit Insurance Corporation (FDIC) seized all SVB’s assets and deposits to protect its customers. Some of these were low-cost housing developers in the Boston area.
SVB was a significant investor in this industry, funding construction loans. However, after the bank collapse, these companies lost their major financier, creating a crisis that mainly affected people needing low-cost housing.
Difficulty in Effecting Payroll
Although SVB invested heavily in the tech industry, its collapse affected other non-tech businesses. For example, SVB had taken over the Boston Private Bank & Trust Company two years before its collapse.
The customers of this company were small and medium-sized businesses, plus nonprofits across different industries. But while most of the attention seems to focus on venture capitalists and other Silicon Valley companies, little is said of regular businesses.
These businesses have faced challenges processing payroll, especially those who put all their funds in SVB or could not pull them out in time. Some were hoping to settle payroll on May 10. But unfortunately, the crash came sooner.
The Way Forward—What Boston Businesses Should Bank On
It’s no shock that public trust in financial institutions continues to decline. Not only has it been a shaky decade-and-a-half and an unprecedented three years—it’s been a turbulent few months. With so much economic uncertainty, entrepreneurs must rely on their skills, instincts, and network of peers to navigate safely and scale accordingly.
If you are a Boston-based business, whether a founder or even a majority stakeholder, looking for a community that will support you in scaling your business, EO Boston may hold the answers you seek. EO Boston is an exclusive business network and community of entrepreneurs interested in aiding the growth of its members and changing the world at the same time. To qualify, your business needs to make a minimum of $1 million in revenue and would undergo a proper vetting process.
This first-of-its-kind peer-to-peer entrepreneur network has roots in 57 countries and organizes leadership programs and other global events aimed at the growth of its members. If you qualify, you can apply to join EO Boston today, connect with our wide network, and we will provide help to overcome your particular challenges.