I'm not going to go into background and context, just so I can manage the post length.
My simple question is what will be the impact of the collapse? I'll set out my thoughts, but really I want to prompt a conversation that people add to - i.e. I'd prefer to hear people's view (ideally with data) rather than just hear that I'm right or wrong.
Impact on banks - SVB is pretty unique so there should be no/limited copycat fails - however, lots of banks have 'hold to maturity' bonds. These are not priced MTM, so haven't been reflected in P&Ls. That's not a problem, as long as they don't need to sell. - the reason they'd need to sell would be to fund outflows (i.e. deposit withdrawals or new lending)
My conclusion is there is limited impact. I don't see further withdrawal runs. At the margin I could see some banks being cautious about new lending, but I can't see it being a major issue.
Impact on SVB customers - most of the customers are VC backed startups or those that have exited onto the public markets. There aren't many retail customers, and those few retail customers are mostly founders. - this means 93% of deposits aren't FDIC insured - clearly not all of this money is lost, as the HTM assets will be sold down in time, but the question is what haircut is taken, and when it gets paid out? - the issue I see is that lots of VC backed businesses are cashflow negative and have been trying to draw out their reserves to reach a better funding environment once The Fed pivots. So many are running low on cash anyway, and now they've lost access to a chunk of funds from (often) their primary banking relationship. Even worse, their owners (VC/PE funds) have limited ability to chip in funds because a chunk of their funds are frozen as they banked with SVB.
My conclusion is that we could see many tech companies be stressed. It will bring forward either the execution of fundraises, but only the strongest will be able to compete for relatively limited capital. The middling strength will substantially cut back on cash burn (i.e. layoffs). The weakest will fail, although not necessarily immediately. I see this having a meaningful and pretty swift impact on the economy
Impact on consumers - limited immediate impacts from SVB collapse due to few retail accounts - however, I'd expect those tech layoffs will hit households - but tech (particularly the start up end) is not a large employer (although it is in certain locations) -start ups are not systemically important so limited impact on consumers day to day life - VC funds will take significant write downs, and so will the investors. But as these investors skew heavily to the top of the wealth scale it probably won't impact spending in the economy
My conclusion is that, at the margin we'll see unemployment tick up and a drag on consumer spending, but unlikely to see much happen
Overall, I see this being very bad for early stage tech (and its employees), but limited impact on other banks or the economy as a whole.
Thoughts?
Submitted March 10, 2023 at 05:11PM by Prestigious_Risk7610 https://ift.tt/615DzmN
