Unraveling the Impact on CX and Startup Ecosystem


The Gist

  • Domino effect? The FTX crypto exchange collapse is reverberating across banking.
  • Crypto bailout. Crypto-based banks are failing, and the US government is bailing them out.
  • CX/startups the benefactor? CX companies and other tech startups stand to benefit from the generous federal hand-outs.

The collapse of Silicon Valley Bank is sending reverberations throughout the banking industry and is exposing instability across the entire technology and banking startup ecosystem. But not to worry, the cavalry is on the way, as all losses will be covered, completely, far beyond the standard FDIC $250,000 limit to which the average American is beholden.

This is important to note as both SVB and Signature had a very high share of deposits above the guaranteed amount. In fact, 94% of SVB’s deposits and 90% of deposits at Signature exceeded the limit and were uninsured. For comparison, the average deposit for conventional large banks is half that percentage. Seems there is a lot of big money sitting in these smaller banks.

Nearly half of all US venture-backed startups kept cash with SVB, including crypto-friendly venture capital funds. FTX was a major customer of the cryptocurrency bank that started the meltdown contagion.

But how did we get here, and how did all the depositors at SVB come off with such a sweetheart deal, far beyond what the law required? What made the US government so generous?

And to be more targeted, how is this going to impact the customer experience industry, of which many vendors and startups used SVB? Will CX companies not just see benefits from this cash bonanza, but get any blowback from getting the bailouts, like seeing their funding lines dry up?

The Silicon Valley Bank Collapse Timeline: A Brief Overview

On March 8, Silvergate Capital, a cryptocurrency bank, announced it would wind-down its operations and liquidate its assets after a bank run. Bankrupt crypto exchange FTX was a major Silvergate customer. After this event, Silicon Valley Bank told investors they needed to raise $2 billion in capital, as it was forced to sell a bond portfolio at a $1.8 billion loss to generate cash.

In a letter to customers, Greg Becker, CEO of Silicon Valley Bank, said the bank had the “financial position to weather sustained market pressures.” On March 9, a Silicon Valley Bank executive wrote that the bank was “actually quite sound, and it’s disappointing to see so many smart investors tweet otherwise.” Fantastic, sounds like there was nothing to worry about. Unfortunately, that was not true as SVB saw its stock drop 60% that day as more customers withdrew their money.

On March 10, Silicon Valley Bank, the 16th-largest bank in the country, and one of the largest banks for technology startup businesses like CX vendors, collapsed. Not a few hours later, regulators took it over, and named the FDIC as the receiver. This was the largest banking crash since the 2008 financial crisis and resulting Great Recession.

The failure of the 40-year-old company put $175 billion in customer deposits under the regulator’s control. Wow! That’s billion with a capital “B.” Just two days later, in order to supposedly prevent the spread of banking contagion, regulators seized Signature Bank, another who has also seen a run of withdrawals. Signature, just like SVB, was crypto-based.

Former United States Representative Barney Frank, who helped write the 2008 banking laws, and now sits on the board of crypto-based Signature, said there was “no real objective reason” that Signature had to be seized.

“I think part of what happened was that regulators wanted to send a very strong anti-crypto message,” he said. “We became the poster boy because there was no insolvency based on the fundamentals.”

So, wait one sec, how is bailing out crypto companies and their banks sending a strong anti-crypto message? What is that message exactly? That you can gamble as recklessly as you want and we will be here to bail you out?

Apparently, yes. The Federal Reserve, the Treasury Department and the F.D.I.C. announced jointly that “depositors will have access to all of their money starting Monday, March 13″ and that no losses from either bank’s failure “will be borne by the taxpayer.”

That will be amazing, if true. While the claim is that banks will pay for this, the reality is they will probably just pass the cost onto their customers through higher service fees.


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