California-based Silicon Valley Bank collapsed March 10, setting off more than a week of panic in the American economy. iStock illustration
During a week when two bank failures put the safety of the banking system at the top of local newscasts, Massachusetts’ bank CEOs found themselves racing to reassure depositors while also striving to take advantage of possibilities the crisis created.
“For all of us, it’s a stressful time,” said Denis Sheahan, president and CEO of Cambridge Trust. “When you have bank failures, it creates stress and uncertainty among clients, so we’ve been working very hard to reassure our clients that the bank is in a good position, which we are.”
Local banks took steps to educate customers about the differences between their business models and those of California-based Silicon Valley Bank, which had more than $200 billion in assets, and New York-based Signature Bank, with assets of more than $100 billion. While the disruption has raised questions about the safety of large deposits at all banks and changes to bank regulation, many local banks think it could also bring opportunities for them to bring on more companies.
Once-Loyal Customer Base Looks Elsewhere
While Silicon Valley Bank became more prominent in the region by acquiring Boston Private in 2021, the nearly 40-year-old bank had built its customer base on the high-flying California and Massachusetts technology industries and the investors who fund it.
But many of those same clients became the immediate cause of the bank’s demise when they pulled a combined $42 billion of its pre-failure $175.4 billion in deposits March 9, according to the California Department of Financial Protection & Innovation, prompting the state bank regulator to seize Silicon Valley Bank the next day.
Some still stood behind their bank. A group of 670 venture capital firms, led by Cambridge-based General Catalyst, issued a call to their peers to return on March 10, even as FDIC agents were turning panicked depositors away from the bank’s now-seized branches.
“Silicon Valley Bank has been a trusted and long-time partner to the venture capital industry and our founders,” the statement said. “For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the US. … In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.”
Tech industry firms and workers had substantial reasons to be loyal, despite the bank’s sudden problems.
Silicon Valley Bank gave startups lines of credit and credit cards to enable their growth when few financial institutions would, said Amy Spurling, founder and CEO of Boston-based human resources technology company Compt. Since most startups have little collateral, she said, Silicon Valley Bank had these firms keep their cash at the bank to reduce risks associated with this credit.
From former Boston Private depositors and wealth management clients to local tech firms burned by Silicon Valley Bank’s collapse, Massachusetts lenders see opportunities to pick up customers as last week’s crisis recedes. iStock illustration
“This runs counter to a diversification strategy, which is better cash management,” Spurling said in an email. “There is a reason other banks will not offer those credit instruments to startups.”
While Compt had switched from Silicon Valley Bank to First Republic Bank four years ago, Spurling said her company went into risk-management mode when Silicon Valley Bank failed, out of concern that failure could spread to other banks.
While Spurling plans to stay with First Republic Bank – on March 16, it received $30 billion in deposits from 11 financial institutions to stabilize the bank – Compt has diversified its liquidity position by opening accounts with JPMorgan to mirror the accounts it has at First Republic Bank, a strategy that Spurling expects to become more common with startup companies.
Going with a large commercial bank instead of another startup-focused bank reduces risks for companies like hers, Spurling said. She added that she had selected First Republic Bank for its customer service and ability to respond quickly, another priority for startups. During the weekend of the bank failures, Spurling texted often with her First Republic banker, even as early as 7 a.m.
Major Players Hope to Gain
Some of Massachusetts’ largest local banks think the crisis could have opened opportunities for them to step in to provide primary banking services for Boston’s many startups.
“There is concern about the loss of the capability of a Silicon Valley Bank to service the innovation economy,” said Sheahan, Cambridge Trust’s CEO. “My hope is that we, and perhaps others, can step in to bridge that gap.”
Despite being smaller than other banks that service the innovation economy, Cambridge Trust launched a group six years ago that provides banking and lending to growth-stage companies, as startups that have a customer base and steady income are known.
“We’ve been slowly and deliberately building our reputation in this space because of that effort that we began about six years ago,” Sheahan said. “We understand – and we’re building a deeper understanding of – the needs to be able to service that segment of the economy.”
Cambridge Trust, which has a longstanding wealth management business, has also started having conversations with former Boston Private customers about banking and wealth management services.
Silicon Valley Bank’s California headquarters in 2019. The bank is now the largest to fail in American history. iStock photo
Other banks have also heard from Silicon Valley Bank customers looking for new banking relationships.
“Like other banks, Eastern Bank has been approached by Silicon Valley Bank customers, and we stand ready to assist any that are looking for assistance,” said Andrea Goodman, senior vice president of public relations and communications.
Joe Bartolotta, director of marketing at Salem Five, said the bank received more than $1 million in new deposits from Silicon Valley Bank customers within the first couple of days of the lender’s failure, largely into business accounts.
Smallest, Biggest Banks Scored Wins, Too
But the past week’s crisis hasn’t entirely broken in favor of Massachusetts’ biggest local lenders.
While Cambridge Trust had seen more new deposits arrive in the days after Silicon Valley Bank’s failure, Sheahan said, some had also left for much larger institutions that company boards considered “too big to fail.”
Some customers have also left larger banks for the safety of one of the 74 Massachusetts banks that belong to the Depositors Insurance Fund, the industry-sponsored fund in Massachusetts that insures balances at member banks above the $250,000 FDIC limit.
Andrew Calamare, president and CEO of the DIF and a former Massachusetts banking commissioner, said 70 percent of deposits held by all member banks are insured by the FDIC while the rest are insured by the DIF. Massachusetts is the only U.S. state that insures deposits above the FDIC level.
Member banks range in size from $89 million in assets to $4.9 billion in assets. Following the bank failures, many of these banks emailed messages to customers and posted information on their websites and social media promoting their membership in the DIF.
Diane McLaughlin
The Cooperative Bank has seen deposits flow in from non-DIF banks, said John Battaglia, president and CEO of the Roslindale-based lender.
Like other banks across Massachusetts, TCB turned to its DIF membership to reassure customers worried about the safety of their deposits. After watching weekend news coverage about the crisis, Battaglia said he recognized that existing customers would likely have questions. Staff worked over the weekend to spread the word to customers via email and the bank’s website after Silicon Valley Bank failed, while also preparing frontline employees about how to respond to customer concerns when branches reopened the next day.
“The response I got was pretty remarkable,” Battaglia said. “People were very appreciative that I was able to educate them about the value [of the DIF].”
