It\u2019s been a week since the California Department of Financial Protection closed the Silicon Valley Bank (US:SIVB) and appointed the Federal Deposit Insurance Corporation (FDIC) as a receiver.<\/p>\n
The volatility in the U.S. banking sector has been off-the-charts as Americans worried that more banks would crumble as depositors moved their cash to bigger, more stable banks such as JPMorgan & Chase (US:JPM).<\/p>\n
On March 16, 11 of the big U.S. banks, including JPMorgan, agreed to move US$30 billion in uninsured deposits to the First Republic Bank (US:FRC) to reinforce the overall strength of the banking system.<\/p>\n
\u201cThis action by America\u2019s largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities,\u201d the group of 11 banks said in a statement.<\/p>\n
How Safe?<\/strong><\/p>\n Here in Canada, questions have arisen about the safety of the Canadian banking system.<\/p>\n \u201cCould something similar happen in Canada?,”\u00a0University of Victoria finance professor Michael R. King asked, writing on March 16 in\u00a0The Conversation, an independent Canadian news source from this country’s\u00a0academic and research community.<\/p>\n “For the largest Canadian banks, the answer is no,\u201d King wrote. \u201cBut for smaller, niche financial service firms, recent history suggests they should not be complacent.\u201d<\/p>\n King points out that niche lenders in the UK and Canada, such as Northern Rock — collapsed in 2007 after a bank run, while Home Capital Group (CA:HCG) almost did before being rescued by Warren Buffett in 2017.<\/p>\n The common denominator with both lenders is that they had niche business models lacking diversified funding. When push came to shove, SVB fell off a cliff.<\/p>\n However, the same day as King’s article, Mark McQueen, a long-time innovation lender, wrote a\u00a0opinion piece in The Globe and Mail, suggesting\u00a0that the demise of SVB will leave a gaping hole in startup funding on both sides of the border for years to come. His bona fides include the leadership role at\u00a0CIBC Innovation Banking until announcing his retirement in February.<\/p>\n \u201cAlthough there are almost 5,000 banks in North America, only a handful focus on startups, despite the importance of software, biotech and clean technology to the future of our economy, health and environment,\u201d McQueen wrote.<\/p>\n \u201cWhile traditional commercial banks will only lend against \u2018hard assets\u2019 or your personal guarantee, people such as me or SVB\u2019s team have spent decades building the expertise to provide debt capital based on the value of your \u201centerprise,\u201d taking into account your company\u2019s IP, revenue or both.\u201d<\/p>\n Funding Enough?<\/strong><\/p>\n So, while Canadians worry whether their bank deposits are safe (they are), we all should be wondering if the Big Five have what it takes to fund innovation in this country.<\/p>\n \u201cWith the loss of such a large debt partner, many VC funds will need to reserve more of their own capital to fund each and every new startup. Which means these same VCs will have no choice but to back fewer new firms,\u201d McQueen wrote.<\/p>\n \u201cAnd fewer new startups means there\u2019s an irrefutable risk that the \u2018next Moderna\u2019 won\u2019t get that first round of essential funding. The consequences of this single bank failure are difficult to overstate.\u201d<\/p>\n Still, banks authorized $1.52 trillion in credit to Canadian businesses, as of 2021, according to the Canadian Bankers Association. Of that, $269.1 billion went to small and medium-sized businesses.<\/p>\n The Globe reports that Canada\u2019s big banks are wooing SVB\u2019s Canadian customers to move\u00a0to their institutions. As a foreign bank branch, Silicon Valley Bank\u2019s Canadian operations could not accept deposits from Canadians or borrow money from financial institutions.<\/p>\n Canadians thump their chests that a concentrated banking sector with five or six firms is a good thing. However, as the lack of competition in the wireless industry here demonstrates — we\u2019re said to have some of the highest cell phone bills on the planet — support from the big banks for innovation and entrepreneurship, especially in the tech sector, is woefully inadequate.<\/p>\n As McQueen politely points out, the loss of SVB will hurt Canadian tech more than people realize, primarily because the Big Five are ill-equipped to step into the breach. It\u2019s against their nature.<\/p>\n This article originally appeared on Fintel<\/i><\/p>\n Sponsored: Tips for Investing<\/b><\/p>\n A financial advisor can help you understand the advantages and disadvantages of investment properties. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.<\/p>\n Investing in real estate can diversify your portfolio. But expanding your horizons may add additional costs. If you’re an investor looking to minimize expenses,\tconsider checking out online brokerages. They often offer low investment fees, helping you maximize your profit.<\/p>\n