When Silicon Valley Bank (SVB) failed on March 10, 2023, it caused significant alarm throughout the US economy – from depositors, customers, and counterparties of SVB to those of all banks — large and small — throughout the country. Reflecting on that period, with the benefit of the passage of time, we’d like to share our “lessons learned” with you.
Banking lawyers aren’t just for banks
Every one of our clients is a depositor at a bank, and when depositors began to lose faith in SVB, all of our clients were affected. We saw that in action when our inboxes exploded with questions from our nonbank clients about the safety of their deposits, how to move money quickly, how their debt facilities might be affected, and their rights and remedies.
In a rapidly evolving crisis, no one has all the answers – and that’s okay
Within hours of SVB's failure, we were able to offer informed (but by no means certain) predictions about how the SVB estate would be administered. We did not have all the answers – for example, about whether another bank would step in and assume SVB’s deposits and acquire its assets, how soon that might occur, and what would happen to the deposits at SVB in the meantime. And that was okay, even if it was uncomfortable for us as lawyers. We focused on providing practical advice and resources to arm our clients with information about the rapidly developing events and the potential regulatory responses.
It is important to be a source of thoughtful, reliable information and advice
Our clients are not just depositors – they are employers trying to pay their employees, debtors trying to make payments under their credit agreements, and businesses trying to pay their vendors, receive payments, and manage their cash flows. To that end, our Bank Failure Knowledge Center (which remains updated) includes FAQs and information from subject matter experts in employment, debt finance, real estate, bankruptcy, and other fields.
This leads to our next lesson learned: It pays dividends to engage with a law firm that understands your business operations and has the subject matter expertise to address any and all issues or risks as they arise. We were able to respond to the sudden collapse of SVB so quickly and thoroughly, providing information – and we hope, a certain amount of reassurance – thanks to the depth of our banking practice and our collective experience with the 2008 financial crisis and onset of the COVID-19 pandemic.
Finally, experienced, trusted advisors can help proactively position every part of your business for the (unfortunately inevitable) next financial market disruption. While the SVB crisis seems to have been contained, and we were relieved that Sunday evening when Treasury, the Fed and the FDIC announced the invocation of the “systemic risk exception” – a bank failure shouldn’t be the first time that you evaluate the risks relating to your (nondiscretionary) participation in the banking system.
The world and the markets can be uncertain and volatile. To plan and prepare for these times, expertise and experience matters. We look forward to assisting you. (And if you have not reviewed your existing banking arrangements or your cash management and investment policy – please do so.)
This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.