Israeli Gov’t Promises Response to US High-Tech Bank Collapse, but Financial Experts Urge Caution
Many Israeli high-tech companies had money in SVB but experts believe the bank’s collapse will have less severe impacts than were anticipated
Israeli Prime Minister Binyamin Netanyahu said on Saturday that the government will provide support to Israeli high-tech companies that were affected by the collapse of the American Silicon Valley Bank. Various Israeli government bodies announced the creation of a team to evaluate the consequences of the bankruptcy on the Israeli high-tech sector. Experts, however, are concerned that the Israeli government may be intervening prematurely.
“I am closely monitoring the collapse of the American investment bank, Silicon Valley Bank, which has led to a major crisis in the high-tech world,” Netanyahu said in a statement. He added that he plans to address the issue together with the Finance and Economy ministries and the Bank of Israel upon his return from Rome.
“Out of responsibility to Israeli high-tech companies and employees, we will take steps to assist the Israeli companies, whose center of activity is in Israel, to weather the cash-flow crisis that has been created for them due to the turmoil,” he said.
Silicon Valley Bank was one of the largest specialized banks serving the American and global tech industries. The bank collapsed on Friday following a bank run – many depositors simultaneously pulling their money from the bank.
The Finance Ministry, the Bank of Israel, the Israel Securities Authority, and the Israel Innovation Authority announced the establishment of a dedicated team to examine the consequences of the collapse and formulate a response if necessary.
But Eytan Sheshinski, professor emeritus of public finance at Hebrew University, told The Media Line that Israeli government intervention may be premature.
He explained that American banks are insured by the Federal Deposit Insurance Corporation, a US government corporation meant to protect those who deposit money in US banks in case of bank failures. He said it should become clear soon whether the FDIC will reimburse those whose money was held by SVB.
Sheshinski said that the most likely outcome is that the FDIC will repay deposits. Regardless of the FDIC response, though, he holds that it would be unwise for Israel to get involved, as it could create incentives for Israeli high-tech firms to take risks they wouldn’t otherwise take.
“If the firms know that they are insured anyway by the Bank of Israel … then they will take more risks than perhaps they would otherwise,” Sheshinski said. “I think it will have a negative effect on the incentives of firms in Israel to take risks by depositing their money in more questionable financial institutions and banks.”
He described Netanyahu’s statement as more of a political signal than sound economic policy.
Oren Baron, an angel investor, member of a growth-stage venture capital investment committee and member of the advisory board of Israeli tech startups, told The Media Line that many Israeli companies banked with SVB. “It was the bank of choice for many Israeli startups,” he said.
According to Baron, though, most of the Israeli companies that had money in SVB also had money in Israeli banks, which will temper the effects of SVB’s collapse. “For most of the companies, the effect is not immediate. But the availability and the uncertainty on when the money will be received do create tension,” Baron explained.
Like Sheshinski, Baron does not support the Israeli government intervening in the situation. He noted that Israeli banks and private financial institutions are offering solutions for companies that had money in SVB and that most companies will likely be helped by insurance payouts.
“I anticipate that most of the companies will get the insured $250,000 on Monday, and about 70% or more in the coming few weeks,” he said, referring to the specific sum that the FDIC generally insures.
Despite a general stance that the government’s intervention would be unnecessary, Baron did propose that the government temporarily defer tax payments for the affected companies. Such a move would allow the companies to “get some of their funds and reorganize to the new situation,” he said.
Baron believes that Israeli companies will continue to deposit money in US banks, but with more caution. He predicts that Israeli companies will start to consider a bank’s stability before opening an account and will keep their money in multiple banks to mitigate risk.
He called on tech company executives to take steps to protect their companies from global financial instability. “This is the time for CEOs to have the leadership to make decisions that will strengthen the balance sheet, even if there is a dilution price attached to that. We are in risky times, and these are the periods where you need a healthy balance sheet to overcome them,” he said.