It has been more than a week since the collapse of Silicon Valley Bank in the United States od America (USA) but its ripple is still sending shivers down the spine of the banking industry as well as the technology world.
The collapse of SVB as well as Signature Bank in the US has called to fore the need for bank regulators to sit up as many fear a repeat of the 2008 banking crisis which reverberated around the world.
SVB which had a niche of banking the tech world as at 2021 had a deposit base of $190 billion and had in its portfolio more than 50 per cent of venture capitals and startups in the tech industry. Customers and investors of the bank had on Thursday, March 10, 2023, begun pulling their funds out of the bank.
The jitters stemmed from SBV’s announcement that a $1.8 billion loss on the sale of a portfolio of securities and sought to raise a further $2.25 billion from capital markets, to shore up its balance sheet but its shares cratered.
Chief Executive Officer of SVB, Greg Baker, had personally assured customers that their money was safe with the bank, which at the time of its collapse had $209 billion in assets and $175 billion-dollar in deposits.
The US Federal Reserve Bank and the FIDC in a joint statement had said shareholders and certain unsecured debtholders of the bank will not be protected. “Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
Noting that it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors, the statement by the banking regulators assured that the “banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”
The events stirred up African startups as well as banking regulators as the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, while speaking with his counterparts from other African countries stressed the need to be more vigilant in regulatory and supervisory roles to forestall any run on banks on the continent.
Emefiele who was speaking at the opening of the 2023 African Central Bank Conference held at the Global Leadership Center, Johannesburg, South Africa, advised central banks on the continent to draw lessons from the recent failure of Silicon Valley Bank (SVB) and Signature Bank in the United States of America, by putting in place regulations that will prevent any run on banks in their countries.
Speaking on the current global dynamics and specific policy developments in Nigeria to address emerging shocks, Emefiele noted that the threats posed to the financial system necessitated the release of new guidelines and regulations to tackle potential infringements and, in the process, protect depositors’ funds as well as promote greater transparency in the sector.
According to him, regulators must be alive to their responsibilities by ensuring that banks under their regulatory watch are financially healthy and do not suffer a similar fate as the Silicon Valley Bank, which, until its collapse recently, catered to many of the world’s most powerful tech investors.
Mostly impacted by the SVB collapse were African founders and some of their backers who were already starting to panic about their portfolio companies’ deposits at a bank known for catering to half of US startups’ savings and credit needs for 40 years.
As fears grew, Chipper Cash, a pan-African fintech valued at more than $1 billion, had to put out a statement assuring the market it had “only about $1m” in SVB but that it had “absolutely no impact” on its business. SVB’s investment arm led a $100 million round in Chipper in 2021.
In African tech WhatsApp groups across the continent, there was also a call for calm about the relatively limited exposure to a bank with a mixed report card when it comes to African startups. In public, some investors like Future Africa’s Iyin Aboyeji spoke highly of SVB’s relationship with African tech, but others noted that African startups were less exposed because the bank had not always been welcome to opening accounts for them.