B-Schools Seek To Counter Fears After The Collapse Of Silicon Valley Bank

Silicon Valley Bank, a subsidiary of SVB Financial Group, was shut down by federal regulators on Friday, March 10. Business schools, and the MBAs they teach, are trying to gauge the fallout

Silicon Valley Bank, a major lender in the tech startup ecosystem, collapsed Friday morning (March 10) in what economists are calling the second-largest failure of a financial institution in United States history. The bank’s disintegration raised the specter of the 2008 meltdown that sparked the Great Recession, sparking fears of a catastrophic economy-crushing crash.

Those fears were allayed somewhat over the weekend when federal and California state regulators shuttered the tech lender and placed it under the control of the U.S. Federal Deposit Insurance Corporation. The FDIC announced that it would act as a receiver, liquidating the bank’s assets to pay back depositors and creditors; U.S. Treasury Secretary Janet Yellen further assuaged concerns by announcing that while a bailout of the bank was out of the question, depositors would be made whole, with access “to all of their money.”

It doesn’t help things that the head of strategy for the bank for the past four years is a Harvard MBA, Adrian Coppini, who graduated from Harvard Business School in 1998 and was responsible for the bank’s strategy development initiatives and corporate planning process. The chairman emeritis of the board for the bank is also an HBS grad: Ken Wilcox, who is also the former CEO who has been with SVB for more than a dozen years.

In the realm of graduate business education, which trained and educated many of the MBA entrepreneurs who did business with SVB, the government’s swift action over the weekend was welcome news, even if it could not wholly quell the alarm over the bank’s seemingly sudden implosion. “It was reassuring to learn yesterday that the government plans to cover deposits of the many start-ups that bank with SVB,” Deepak Gupta, VC/startup director at UC-Berkeley Haas School of Business, tells Poets&Quants noting that the total of deposited funds in question has been reported to exceed $175 billion.


UC-Berkeley Haas' Deepak Gupta: "I think once the companies sort all this out, which should be quick, there's a reason to believe that they'll hire again."

"We expect a temporary 'blip' in start-up hiring, naturally, as they sort out financing matters," Gupta says. "Once these companies sort through this, which should be quick, there is reason to believe they will hire again and will need to staff up to support their growth — that's why they would have been well-financed by VC funds."

He says Haas sends about 10% to 15% of each graduating MBA class into the startup world, including 3% to 5% into venture capital roles. No wonder, then, that he spent the weekend and much of Monday following SVB's collapse fielding calls and emails from students and alumni concerned about their future. "Oh my God, I have a students and alums just texting, calling, Slack, you name it — the weekend was crazy," he says. "But I think it's much better now."

It's better, he adds, because of the quick and decisive action of the federal government, and because of the resources and resilience of the venture capital ecosystem in the Bay Area.

"VCs have a lot of dry powder," Gupta says. "They had a record raise of funds in 2021, with many new funds. Since the investment period for the majority of the funds is three to four years, we see a robust startup environment and continuation of hires in for foreseeable future.

"We saw so many great companies getting funded in the month of February alone, so funding is still very strong. And from a venture capital perspective, 2021 was one of the best years in terms of raising capital per VCs. I think once the companies sort all this out, which should be quick, there's a reason to believe that they'll hire again — and they need to start again."


Washington Foster's Philip Bond: "I would not be so sanguine about stepping out of the woods"

Philip Bond is the Edward E. Carlson distinguished professor in business administration at the University of Washington Foster School of Business in Seattle, the city where Microsoft and Amazon have headquarters. Foster is regularly the leading school for MBA tech job placement each year; nearly half of the graduating Class of 2022, 48%, found work in the sector.

Bond says the government's move to guarantee the deposits at SVB "clearly makes a big difference for all the startups that have deposits of frequently millions of dollars more than" the standard FDIC insurance coverage of $250,000. "So it's clearly a big deal for, certainly, Silicon Valley and also Seattle, in which there are a lot of people banking through Silicon Valley. I think it certainly has reduced the chances of seeing things like this at other banks." He noted, however, that New York-based Signature Bank was also shut down by regulators over the weekend.

The risk, Bond says, is not "contagion" — one bank after another falling prey to uncertainty among depositors and investors in a classic "run" scenario — but the perception, and reality, of broader industry risk.

"My view is that the issue is that people are waking up to the industry risk that many banks, Silicon Valley Bank among them, have held on their balance sheet," he says. "What the government has said is, they're going to guarantee the deposits at least at Silicon Valley Bank and the Signature Bank. Now, I think that's been widely interpreted as they'll do the same for any others, any other similar bank and maybe any other bank, period. And that can clearly reduce the chances of this sort of thing happening in any other bank." That said, he adds, the risk of the Fed raising interest rates "is still there."

"I would not be so sanguine about stepping out of the woods," Bond says.

He says he understands that students and alumni of Foster's MBA program — "anyone holding an offer from a startup or, more generally, anyone who banks with Silicon Valley Bank" — will be rightfully concerned. "I think we should keep in mind the fact that part of why Silicon Valley Bank got into trouble, as I understand it, is that startups have been drawing down the deposits over the last six to 12 months. And they've been doing that because the immediate money was drying up. So I think the set of factors that led them to this are still there, and they're really unrelated to this episode in the last five days."


Stanford's Darrell Duffie: "If the government decides that it needs to help the tech sector through this mess, then it will need to act quickly."

Darrell Duffie is a professor of finance at Stanford University’s Graduate School of Business. On Sunday, March 12, he wrote an opinion piece at CNN.com that agrees in key areas with Deepak Gupta's assessment of the collapse of SVB as unlikely to lead to a systemic banking failure.

"Despite the panic over SVB’s collapse, this situation isn’t likely to morph into a broader banking crisis. Since the collapse of Lehman Brothers in 2008, the largest U.S. banks have been forced by regulators to be much more resilient. They also rely far more heavily than SVB on retail depositors, who tend to have a greater share of their deposits covered by FDIC insurance and are less prone to run at the first sign of trouble.

"Of more immediate concern is the potentially systemic impact this will have on the tech sector, which has already seen mass layoffs and investments shrivel up in recent months. Close to half of all listed U.S. venture-backed tech and health care firms were SVB customers and many of these companies were racing to line up funds to make payroll in the aftermath of the collapse."

Duffie applauds the government's "swift action" and statements by the FDIC "that it would pay uninsured depositors an 'advance dividend within the next week.'

"But plenty more may need to be done," he adds. "The tech sector is an engine of economic growth and a key element of U.S. national security, especially given the rivalry between the U.S. and China. If the government decides that it needs to help the tech sector through this mess, then it will need to act quickly."


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