Earlier this month, Silicon Valley Bank—one of the largest banks in the United States and a go-to financial institution for the tech industry—collapsed. When it all went down, it wasn’t just the tech industry that felt the ripple effects, though. The Silicon Valley Bank shutdown hit everyone from big banks to cryptocurrency funds, as well as small eCommerce business owners who rely on marketplaces like Etsy and Shopify to sell their products.
What Happened with Silicon Valley Bank?
Based in Santa Clara, Silicon Valley Bank (SVB) started in 1983 and grew into one of the tech industry’s foremost lenders. It specifically handled deposits for thousands of start-ups, big and small. If an entrepreneur raised money from venture capitalists, it was common for them to deposit that money into SVB. Then, in March 2023, federal regulators took control of Silicon Valley Bank’s deposits after the bank ran into liquidity issues and a cratering stock price.
What had happened was: Silicon Valley Bank had invested about $80 billion in mortgage-backed securities that returned a modest interest rate. However, these interest rates started looking comparatively low when the Federal Reserve began raising rates in 2022. Compared to what SVB could be making with other debt holdings, this $80 billion in mortgage-backed securities started looking like losses. The bank had to free up some cash, so it started selling massive amounts of its own stock, which spooked investors and depositors. SVB’s stock tumbled when investors learned of the bank’s finances, and depositors started withdrawing their money at the same time. The bank didn’t have enough to cover this outflow of deposits, so the federal government had to step in and take over. Thus, the bank was no more.
The whole thing marks the second-largest bank failure in U.S. history, behind the 2008 collapse of Washington Mutual. According to the Federal Deposit Insurance Corporation (FDIC), Silicon Valley Bank is the first FDIC-backed institution to fail this year and had roughly $209 billion in total assets as of December 31st, 2022.
Etsy and Shopify Suspended Payments to Sellers During the Collapse
Thousands of companies kept their cash with SVB, including eCommerce platforms such as Etsy and Shopify. When regulators took over, Etsy and Shopify froze payments to merchants for the products they had sold on the platforms. As a result, Etsy and Shopify froze payments to sellers for a couple of days…which ultimately affected millions of people who rely on those platforms to run their eCommerce businesses.
How Will the Silicon Valley Bank Shutdown Affect eCommerce Sellers Long-Term?
Once regulators stepped in, U.S. Treasury Secretary Janet Yellen said that the government would make all of SVB’s depositors whole without bailing out SVB. After a week of the dust settling, Etsy and Shopify reinstated payments to their sellers a few days after SVB’s shutdown. Shopify CEO Tobias Lutke tweeted on March 11th that the company was back to “business as usual” since “only a small portion of [Shopify’s] US operational fund flows” were tied up in SVB.
Ultimately, it seems like SVB’s collapse was more of a temporary blip for most small eCommerce business owners rather than a source of permanent pain. Of course, a broader failure in the banking system would spell more trouble for more than just eCommerce sellers. It would affect pretty much everyone…even the major shipping carriers such as USPS, UPS, and FedEx that power the logistics networks the eCommerce industry is built upon.