July 2, 2024
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Bank CEO, economist see little impact from SVB failure

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The chair of the region’s biggest bank a leading economist responded quickly to the biggest bank failure since the financial crisis with reassurances that Silicon Valley Bank is unlikely to have broad impacts.

Based in Santa Clara, Silicon Valley Bank had its doors closed and its deposits seized by the Federal Deposit Insurance Corp., the regulators announced Friday.

Janet Garufis, Chair and CEO of Santa Barbara-based Montecito Bank and Trust said Silicon Valley bank’s “unique business model” in financing venture capital-backed startups triggered a liquidity problem that is not likely to be an issue for traditional banks.

“Our liquidity position is strong,” she added in a March 10 phone call with the Business Times.

Peter Rupert, professor of economics at UC Santa Barbara and director of the UCSB Economic Forecast Project said “there are no signs that the closing of SVB this morning presents any systemic risk” in a March 10 statement.

He attributed the statement to  “idiosyncratic borrowing and lending practices” which combined with rising rates and a pullback in venture financing reveal a fatal flaw in its capital structure.

While they said the failure of the bank, with assets of $211 billion by the end of 2022, was not likely to spread, Garufis said the bank wanted its staff to be ready to answer questions from customers. It also sought ways to provide services to the relatively few Silicon Valley Bank customers in the region.

In the past, Montecito Bank & Trust operated a small unit that provided lending to tech firms and it was looking for ways to help tech borrowers Garufis said.

She also said it was unlikely that the collapse of Silicon Valley Bank would have a significant impact on the commercial leasing sector which already has seen larger tech firms like Appfolio significantly reduce their space needs on the South Coast.

One area where Montecito Bank & Trust, and other regional lenders, were looking to fill a gap was in lending to wineries and others in the wine industry. Silicon Valley had carved out a niche in that area but regional lenders would likely be eager to work with viticulture clients where local market knowledge and industry expertise are important.

Rupert, a Montecito Bank & Trust board member, said that regulators’ decisive action helped prevent further complications.

“The FDIC moved quickly to allay any fears,” he said.