Six months ago, I wrote in Forbes how the Fed’s Inflation fight would harm Biotech. With the FDIC takeover of Silicon Valley Bank (SVB) using the receiver, Deposit Insurance National Bank of Santa Clara the judgement has proven to be correct. And what could happen next may be even more disruptive.
Six months ago, I wrote in Forbes how the Fed’s Inflation fight would harm Biotech. With the FDIC takeover of Silicon Valley Bank (SVB) using the receiver, Deposit Insurance National Bank of Santa Clara the judgement has proven to be correct. And what could happen next may be even more disruptive. From it’s high two years ago, the XBI biotech index has lost 50% of its value and far from being at a bottom, SVB’s demise poses an additional and un-quantifiable life-sciences systemic risk and there isn’t anything the FDIC will be able to do about it.
So, what are the 5 critical questions and answers about SVB and Biotech?
1. What was SVB and how did it operate? In many ways SVB was a one-stop banking-finance solution for its many Tech/Biotech clients. While it is common practice for banks today to bundle financial services for their clients, SVB was probably better at it than most given their personalized client relationships and their non-traditional client base (From Start-ups to fast growing Life-Sciences concerns). These types of businesses are in constant need of financial assistance from venture debt, corporate revolving lines of credit covering receivables/day to day operations and letters of credit covering business leases/asset purchases.
The bank’s website was proud to claim that in 2022, 44% of US Venture Capital backed companies having done an IPO were SVB clients. This also meant that these same clients, both business and individuals were likely to carry multiple accounts with SVB making its abrupt end both profound and costly as the next bullet will explain.
2. How different was SVB from other banks? 88% of SVB’s deposits were above the $250,000 insurance maximums and that represented more than double the industry average. What this will mean for the Receiver bank can become very subjective, while no bank failure is straightforward, (e.g. – FDIC insured deposits will typically be released to depositors in a few days) it is unclear to what extent, accounts with deposits greater than $250,000 will recover any additional portion of funds on deposit.
