How the SVB Collapse Filters Down to You

Etsy vendors are breathing a sigh of relief this morning after a tense weekend. Many sellers received an email from the arts and crafts marketplace on Saturday, March 11, following the collapse of Silicon Valley Bank (SVB). The contents of the email set off bells and whistles for thousands of small and micro businesses that operate on the Etsy website, as sellers were informed that their payments would be late.

Here's how it works: Let's say you purchase a handmade piece of jewelry online. Your money flows from Etsy to the bank (in this case, SVB) and then finally to the vendor, who uses part of it for materials and shipping, and takes the rest as profit. That simple business dynamic is upset when the bank is closed because the money that has been deposited is unavailable.

Many of these Etsy start-ups began during COVID and have become the primary income for a significant portion of the vendors. In other words, if Etsy can't give them the money paid to purchase the item they are selling, they will suffer a financial meltdown. One panicked Etsy vendor posted just that on TikTok: "I run a small business. I do this from my home. Those funds feed my family and pay my bills." But Etsy isn't the only commercial enterprise affected.

The TV platform ROKU has 26% of its reserve money jammed up in SVB. Luckily, company executives say they have enough funds on hand to run their operation for a year. But a quarter of ROKU's cash reserves amounts to a reported $487 million lost, and that's not chump change.

The Federal Deposit Insurance Corporation (FDIC) is only for those who deposit up to $250,000, but 90% of SVB deposits were over that amount, which means large depositors are out of luck. At least, that's how it was expected to play out until a plan was hatched to save those folks and quell the panic and a possible run on banks nationwide.

SVB: Saved by the Bell

In the case of Etsy, a bailout of SVB will save these folks from catastrophe. Liberty Nation reported, "The US central bank will develop a new Bank Term Funding Program that will extend loans of up to one year for companies impacted by SVB's failure." The US Treasury will also make up to $25 billion available from the Exchange Stabilization Fund, which banks pay into as a sort of insurance policy for such a time as this.

Liberty Nation Economics Editor Andrew Moran has been closely watching the current bank crisis and asserts, "As long as these regional and community banks maintain sufficient levels of Treasury bonds or mortgage-backed securities, they will qualify for the financial support offered by the Fed, Treasury, and FDIC. This will make sure that depositors can access their funds without hiccups. But suppose it is revealed that some companies lack liquidity and have a less diversified portfolio. In that case, it could turn out to be a financial nightmare for these outfits and their clients, be it individuals or small businesses." On the bright side, Moran notes, "the larger banks, like JPMorgan Chase, are already intervening and offering additional liquidity to these institutions to prevent a contagion event."

The elephant in the room is how much and for how long big banks like J.P. Morgan will be able to support their smaller counterparts. Three US banks have failed in the last few weeks: SVB, Silvergate, and Signature have been shut down, and the handwriting appears to be on the wall regarding First Republic Bank, which was getting slaughtered in the market on Monday. It is also unclear what long-term impact the SVB failure will have on Etsy, as jittery vendors may decide to abandon the platform for more secure marketplaces.