Lesson from Silicon Valley Bank’s failure, Zerodha CEO Nithin Kamath explains

Zerodha founder and investor Nithin Kamath said the lesson for the fallout of Silicon Valley Bank (SVB) or the most recent collapse of a mid-sized Yes Bank in the Indian context is to have funds, especially working capital, distributed across a bunch of banks.

The Zerodha co-founder said it is ridiculous as to how many things can go wrong in a business right from rapid changes to not being able to access money in the bank as is the case with the embattled SVB.

“It is ridiculous how many things can go wrong when running a business. Everything from rapid change to market sentiment to waking up one day and being unable to access money in the bank, like with SVB,” the Zerodha boss noted.

Kamath believes an underrated skill set for running a business is being pessimistic. “Consider everything a risk and do everything you can to mitigate it. Every business will be exposed to a black swan event at some point; the idea is to survive those,” he explained.

Take a look at his tweet:

The collapse of the Silicon Valley Bank has rocked the markets, raising concerns that other banks could be facing similar problems.

"The contagion risk remains for small banks with highly rate-sensitive clients but the US authorities now step in to avoid contagion," Swissquote Bank's senior analyst, Ipek Ozkardeskaya, said.

"The bank crisis will be sitting in the headlines, as solutions and possible contagion beyond the banking sector and beyond the US borders will be on the menu of the week," Ozkardeskaya said.

On Friday last week, the regulators took control of SVB – a key lender to startups across the US since the 1980s – after a huge run on deposits left the medium-sized bank unable to stay afloat on its own.

On Sunday, US authorities unveiled sweeping measures to rescue depositors' money in full from failed SVB and to promise other institutions help in meeting customers' needs.

Some 89 per cent of SVB's $175 billion in deposits were uninsured as of the end of 2022, according to Federal Deposit Insurance Corp.

All depositors, including those whose funds exceed the maximum government-insured level, will be made whole, as per a joint statement by US Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chair Martin Gruenberg on Sunday evening.

SVB's UK arm was sold to HSBC for a nominal 1 pound, the government and HSBC announced today.

Hunt tweeted, “This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC. Deposits will be protected, with no taxpayer support. I said yesterday that we would look after our tech sector, and we have worked urgently to deliver on that promise.”