Silicone Valley Bank (SVB) has taken over the news with its institutional failure and subsequent seizure by federal regulators. SVB fell last Friday and was the most significant U.S. bank collapse since the 2008 financial crisis. The ‘08 crisis, known as the Global Financial Crisis, was caused by financial deregulation following the collapse of Washington Mutual Bank. To not invoke a similar economic disaster, The Federal Deposit Insurance Corporation (FDIC) instantly seized the SCB and began to rectify the withdrawal requests from the depositors. However, the government cannot curve the psychological strain and fear within the finance and tech industries. This calamity leaves the combined market value of $7.8tr in shaky hands. How big is that? For size comparison, there is currently only $1.4tr in circulation in the united states.
What Happened?
The collapse of Silicon Valley Bank and its subsequent federal takeover marked the end of a four-decade era of growth for the institution, which had become a significant financial player within the lucrative tech sector. The bank's downfall happened due to a bank run. A bank run is an event where panicked depositors simultaneously withdraw substantial amounts of money from a bank. SVB's extensive holdings had grown substantially during the pandemic, with the bank investing heavily in government-backed long-term US Treasury bonds, typically considered safe and stable financial instruments. However, as interest rates issued by the US Department of the Treasury increased, the value of these bonds decreased, prompting SVB to sell a portion of its holdings at a loss and, in turn, causing a wave of depositors withdrawing their funds from the bank. On Friday, the FDIC assumed control of SVB, alongside New York's Signature Bank, which also experienced a significant withdrawal spree following the SVB collapse. In a Monday White House statement, President Biden sought to reassure Americans, stating that the banking system was secure and depositors' funds would remain safe.
Affect On Media and Marketing
President Biden's assurances have alleviated concerns for most professionals in the advertising industry regarding the impact of SVB’s collapse and subsequent federal takeover. However, some believe the event will likely prompt marketing organizations to review their banking strategies. The effects of the bank's collapse will probably have long-lasting effects; therefore, agencies should take two steps moving forward.
First, agencies must check company viability, financial status, and product viability before engaging with other companies to ensure their companies are financially stable and their product works. Agencies also need to ensure their vendors are responsible for damages due to their work. These measures will help protect the marketing agencies from financial loss or damage that might occur due to the collapse of a company.
Second, diversifying banking partners will likely become a higher priority among professionals in the media and marketing industries. In other words, they are putting their proverbial eggs in many baskets. To combat this, Advertisers may prefer working with banks that have diversified their cash holdings and avoid those with too much exposure to a particular financial entity. Advertisers who rely on banks to manage their finances prefer to work with banks that spread their cash across different types of investments rather than depending heavily on a single asset or financial entity, which reduces the risks of financial losses. For instance, if a bank invests most of its cash in government bonds, and a crisis occurs in the bond market, it may need more financial support for its clients, including advertisers.
What’s Next?
The collapse and federal takeover of Silicon Valley Bank has significantly impacted the finance and tech industries. While government assurances have calmed most professionals in the advertising industry, marketing organizations need to re-evaluate their banking strategies. Before engaging with other companies, marketing agencies should take precautions and ensure sequential liability with all vendors. Furthermore, diversifying banking partners will likely become a higher priority among professionals in the media and marketing industries. Advertisers may prefer working with banks that have diversified their cash holdings and avoid those with too much exposure to a particular financial entity. By taking these measures, marketing agencies and businesses can safeguard themselves against potential financial losses due to the collapse of a bank.
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