Irish Examiner view: Banks and tech firms get the jitters

Silicon Valley Bank's failure will cause pessimists among us to recall the way the financial crisis of 2008 unfolded

Flashback to January 22, 2008, and passers-by scarcely seem to notice the financial market display screen in London as billions were wiped off the value of stocks worldwide. File picture: Cate Gillon/Getty

There is a hoary old saying in financial circles, that “when America sneezes the world catches a cold”. It’s an expression that has been doing the rounds since the Wall Street crash of 1929, but has lost little of its resonance.

Those of us with a pessimistic mien will have watched this weekend’s collapse of the Silicon Valley Bank and remember the straws in the wind earlier this century which preceded the Great Austerity, the consequences of which are still with us today, made more entrenched by the covid pandemic and the war in Ukraine. We will be keeping our fingers crossed.

Back then, the huge crisis of 2008 was preceded by smaller scale warnings, such as the failure of two Bear Stearns hedge funds which had serious exposure to sub-prime mortgages in the US market. 

You don’t need a long memory to recall the names of some of the key players in that period of unsettling volatility — Freddie Mac and Fannie Mae; Northern Rock; Lehman Brothers; Goldman Sachs; Morgan Stanley; AIB and Bank of Ireland; Royal Bank of Scotland.

SVB doesn’t trip off the tongue with the same ease as some of those global giants, but its collapse was preceded last autumn by the bankruptcy of FTX Trading Ltd, a crypto fund which experienced similar problems: A spike in customer withdrawals because of evaporating confidence, an accelerating panic, and the loss of liquidity. The worry for financial managers, and the public, is whether these are the first indications of wider contagion in the systems.

There is a particular anxiety for Ireland, in that Silicon Valley Bank, as might be guessed from the name, was a principal backer of technology companies and start-ups.

It claimed to have banked 44% of those US companies supported by venture capital which went public last year, including half of those founded on specialist tech and life sciences.

US and European bank shares slumped over the weekend as spooked investors began to ask how many other companies might be damaged by the meltdown, a question yet unanswered. 

In Ireland, the Department of Finance has told the Irish Examiner it is monitoring developments as the bank assesses its Irish exposure over the coming days. This is due to the speed at which the lender fell into difficulties after a run on the bank that started when it announced plans for a €2.11bn share sale on Wednesday, to help shore up its finances.

The Ireland Strategic Investment Fund said it does not expect any negative impact on the State’s €93.9m investment in five funds managed by a subsidiary of the SVB Financial Group. 

But the biggest American banking failure in more than a decade, operating in a tech sector which is of fundamental importance to the Irish economy, and which is already jittery because of other issues, does little to promote confidence that there are not bigger problems on the way.