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Silicon Valley Bank, Part II

 


What was the significance, what is the current significance, of the failure of Silicon Valley Bank in March of this year? 

For a few nervous weeks thereafter, it appeared that this might be the spark that sets off the forest fire, the catalyst for a 2008 style banking crisis. But with four months between that moment and our own, we can say with some safety that that was NOT the case. 

One ripple, though, was this: the failure of SVB had a rather severe impact on the west coast venture-capital world which SVB and its parent company, SVB Financial Group, served. The bank and its parent and sister entities were founded precisely to serve that world. 

Yet the broader economy survived. I do believe that venture capitalists serve valuable economic functions. But they are not day-to-day functions, and the rest of the system can get along without them for a time. The VC spending in the United States fell by half in the second quarter of 2023, largely due to the absence of SVB. But the world goes on and the third quarter will surely see a lot of that restored. 

The fact that the parent company and some of the sisters went into bankruptcy court has created a new genre of gossip for specialty finance. What assets will the bankruptcy court auction off and who will win them? Intriguingly, the former Leerink Partners, which was purchased and renamed SVB Securities years ago, has now been spun out of the bankrupt estate and purchased by ... Jeffrey Leerink. The fellow smiling above. And he has restored to it the name Leerink Partners. The old is new again. 

Leerink's special interest was always the financing of biotech. We will see if it ends up back there. 

Beyond those two points, and beyond the issue of whether the FDIC was too generous in its support of the depositors beyond the formal insurance limits, I think the significance of SVB is ... the dog did not bark in the nighttime. THAT is the curious incident. The US economy is not as fragile as many of us might have feared.

There is also the question of where Leerink got the money to pull off this comeback, and what is the big picture for those backers. But ... another day. Tomorrow we will discuss something completely different. 

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