On Friday afternoon, the California Department of Financial Protection and Innovation closed the Silicon Valley Bank (SVB), appointing the Federal Deposit Insurance Corporation (FDIC) as receiver of the nation’s 16th largest bank.
This is the second-largest bank collapse in U.S. history, and it just happened in under 48 hours when the bank surprised investors and customers that it needed to raise $2.5 billion to shore up its balance sheet.
The resulting panic run of $42 billion in withdrawals accelerated the downward spiral of the bank as large depositors, many of which are tech startups and venture capital (VC) firms, withdrew funds in record time.
While the bank has only 17 branches in California and Massachusetts, it was the go-to bank in Silicon Valley for VCs and tech starts ups, including many of their employees.
With the FDIC only insuring deposits up to $250,000, the risk was greatest for corporate clients, especially those that had most if not all of their deposits with a bank that had been trusted in the industry for 40 years.
The FDIC created a new bank called the Deposit Insurance National Bank of Santa Clara (DINB), which transferred all insured deposits and plans to reopen the SVB branches on Monday, March 13, 2023.
Unfortunately, the FDIC is still trying to sort out how much of the estimated $175.4 billion in total deposits are uninsured.
This means that any individual or corporate entity with deposits exceeding $250,000 will not have access to their uninsured portion unless the FDIC can find a buyer, investor. or dissolve the bank.
As the tech industry is licking its wounds now, news is trickling out that some companies are affected by this bank collapse.
One online retailer, venture-backed toy store Camp, announced they had “most of our company’s cash assets” at the bank and is asking customers to help the company survive by making a purchase. It is even offering a huge discount on merchandise to convince buyers to help it survive.
Etsy Exposure to Silicon Valley Bank
Late in the afternoon, Etsy sellers on online forums began complaining that their scheduled payout for Friday, March 10 had been automatically delayed until Monday. Some people began to speculate that Etsy may be using SVB and that this massive delay was connected to the bank’s failure.
On Friday evening, Etsy issued an email to sellers confirming the reason their scheduled deposit was delayed due to “recent developments regarding Silicon Valley Bank, who Etsy uses to facilitate disbursement to some sellers.”
Etsy further said, “We are working with our other payment partners to issue your deposit as soon as possible.”
The company didn’t provide any further details on how large its exposure is to SVB. However, unlike VC-backed startups and smaller tech firms that may have most of their funds in one bank, Etsy should have the financial resources to make sellers whole relatively quickly.
On Saturday afternoon, Etsy issued an update in its community forums:
“As you may have seen, we recently experienced a delay in our ability to issue payments to some of our sellers. This was related to the rapid and unexpected collapse of Silicon Valley Bank.
“We apologize for any inconvenience this has caused. Our teams have been working around the clock to implement a solution and ensure sellers are paid within the next few business days via our other payment partners.
“We are committed to helping you run your business — and providing a reliable experience is a critical part of that commitment. Please know our teams are working tirelessly to minimize future disruptions and continue to serve you as best we can.”
While affected sellers originally said their new payout information date showed March 13, the email from Etsy didn’t offer that specific date.
And with Etsy’s Saturday statement, it appears payouts may be delayed by a few business days beyond Monday until the company can arrange for an alternative payout solution via its other partners.
For those worried about Etsy’s financial situation, let’s take a brief look at their last financial filing (Form 10-K) and why there really isn’t anything to be concerned about.
At the end of 2022, the company had $1.2 billion in cash, cash equivalents, and short- and long-term investments. Of that, $921 million was in cash and cash equivalents.
In addition, Etsy has a revolving credit facility (credit line) of $200 million, which was still available in full at the end of the year. In other words, they weren’t using any of it.
Obviously, without knowing the exact exposure the company has to SVB, we believe Etsy should have enough financial resources to pay sellers. Simply put, it finished the year off better than many of its peers.
It’s also very possible Etsy didn’t even have its funds directly with SVB. But instead, one of its payment partners did, which could’ve caused this disruption as well.
Another good sign for sellers is that the company’s stock price has remained stable in after-hours trading, further indicating that the “smart money” on Wall Street has no concerns about Etsy.
As of Friday evening, we are only aware of Etsy having had some form of exposure to SVB. We have not seen any suggestion that eBay, StockX, or other marketplaces may be affected as well.
This continues to be a developing story, and we will update it if we learn more.
Last updated on Saturday, 3/11/2023 at 5:50 pm.
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