Silicon Valley Bank’s collapse rattled the U.S. Now, Canada braces for aftershocks

The rapid collapse of Silicon Valley Bank (SVB) has sent shockwaves through the Granthshala financial system and Canada is not immune from the effects.

The startup-focused financial institution’s Toronto-based branch was temporarily seized by Canada’s banking regulator on Sunday night as Finance Minister Chrystia Freeland urged her US counterparts to calm down amid market uncertainty and fears of an outbreak at banks in the north. Was invited to stay. Limit.

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Experts who spoke to Granthshala News on Monday said that while most Canadians may have faith in the country’s banking system, the collapse of SVB could have overshadowed some parts of the economy.

Here’s what to know.

US regulators were forced to immediately shut down California-based SVB on Friday after panicked depositors pulled out billions of dollars, prompting a bank scramble. Silvergate Capital, known for its crypto-friendly operations, voluntarily closed late last week and on Sunday US regulators moved to shut down the New York-based Signature Bank.

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Shares of US regional banks tumbled on Monday as sharp losses at First Republic Bank fueled fears it could be next if a “contagion” emerges — a term referring to volatility spreading through the financial system. .

John Ruffolo, a Canadian venture capitalist with 30 years of experience in the technology industry, says the speed with which SVB completely wrapped up from normal operations was “shocking”.

“I am completely shocked at how the whole mess came to light,” the founder and managing partner of Mavericks Private Equity told Granthshala News on Monday.

Ruffolo says the weekend was “quite stressful” for many people in tech, including himself, who were unsure how SVB’s operations would wrap up. Many customers in the US were unsure whether they would have access to their deposits when banks reopened on Monday.

If SVB’s corporate and individual customers were not allowed access to their funds, Ruffolo said it would increase the risks of contagion.

It was a huge relief when U.S. Secretary of the Treasury Janet Yellen came out on CBS’s ‘Face the Nation’ on Sunday to assure customers that they would be made whole once SVB’s assets were seized, he says.

“I was able to put away my defibrillator,” Ruffolo says, adding that he was “very happy” with a quick response, even from Canada’s federal government.

The Office of the Superintendent of Financial Institutions (OSFI) temporarily seized SVB’s operations in Canada on Sunday night.

In a statement, OSFI said the lender’s Toronto branch has been lending primarily to corporate customers, and that the branch does not hold any commercial or personal deposits in Canada.

Freeland said in a statement Sunday night that she had spoken with Canadian financial sector leaders and the Bank of Canada and that the country’s “well-regulated banking system remains robust and resilient.”

Ruffolo agrees that at this juncture, it appears that the risk of contagion in Canada is limited.

“From a Canadian impact perspective, unlike the US, I would put the level of impact very low,” he said.

The money held by Canadians in their bank accounts is largely protected by the Canada Deposit Insurance Corporation (CDIC). The agency insures Canadian deposits of up to $100,000 at 86 member institutions in eight categories, for a total of $800,000 in coverage.

A CDIC spokesperson told Granthshala News in an emailed statement Monday that in more than 55 years, “no one has lost a single dollar protected by CDIC.”

While most Canadians haven’t had much direct exposure to SVB, experts say the collapsed bank’s concentration in startups and the tech industry suggests the sector will face vulnerabilities for months to come.

“SVB was a really important player in the startup ecosystem,” says Ray Newall, CEO of C100, a Granthshala community of tech investors and entrepreneurs.

“Regardless of your role in the tech community, it was a tough weekend. It was a very sobering moment for tech,” he told Granthshala News.

SVB was a “foundational partner” for the C100, says Newell, and would sponsor the group’s events in Canada.

He says that in addition to bringing the community together at events, SVB will play a key role in providing reliable banking, investments and loans to many startups who would otherwise struggle to get access to such services at traditional institutions.

Without early-stage support from lenders like SVB or venture-focused branches like RBCX, startups with the potential to bring useful innovation to market may never get out of those early stages, Newell says.

“You need an ecosystem to do that. You need a banking infrastructure to do that. You need credit and payroll services and a whole stack of different services to make these startups viable. And That was the role that SVB really created,” he says.

Ben Bergen, president of the Council of Canadian Innovators (CCI), says the organization put out a call to its members over the weekend to find out how many are being directly affected by SVB; He puts that number at less than 10 percent.

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But there is going to be a “hangover” in technology related to the collapse of SVB, Bergen tells Granthshala News, which could “exacerbate” the challenges already facing the sector.

The tech industry has been hit hard as the economic outlook turns with recession fears …