Over 72 hours after the collapse of America’s 16th largest bank Silicon Valley Bank, the global tech and financial services industry has been taking stock of the implications and lessons for their markets.

The United States Treasury Secretary, Janet Yellen, in her statement said “After receiving a recommendation from the boards of the FDIC and the Federal Reserve and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

Providing its perspective on this development, the Proshare Analyst Note published on March 13^th, 2023, viewed the SVB collapse as the outcome of an overexposure in lending to a single sector (Tech) and an over-dependence on the same sector for deposits, a similar pattern has been observed with Nigerian Banks in respect of Oil and Gas companies. Secondly, the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) need to step up their scrutiny of the risk management practice of Nigerian banks to prevent a similar incident. 

Implications for Nigerian Fintech Industry

Responding to enquiries from Proshare on the SVB development, the Chief Operating Officer of Fintech Nigeria, Dr. Babatunde Obrimah, said most Fintechs that raised funds from US investors have funds with the bank. According to him, Y-Combinator has over 1,000 fintech who have accounts with the Silicon Valley Bank. 

Y-Combinator a community of 9,000 founders have since 2005,  funded over 3,500 startups and has companies with a combined valuation nearing $1trn. Since 2009 till date at least 20 Nigerian fintech startups have been admitted through the Y Combinator application. Some of the notable fintech startups backed by the Y-Combinator are Paystack, Flutterwave, Bamboo, Blueloop and Techibytyes. Paystack and Flutterwave have both evolved to become unicorns in the industry.

Future Africa is a strategic investor in global businesses that will lead the digital economy and is one of the major firms that have funds with Silicon Valley Bank. The steps taken by the US Treasury Secretary and the Federal Deposit Insurance Corporation, FDIC could salvage what would have been a contagion of financial crisis for the fintech industry in Nigeria and globally.

These are the early stages and Proshare news will continue to monitor the situation.

Lessons for the Nigerian Financial Services Sector

Public Affairs Analyst Kelvin Emmanuel believes the SVB crisis provides an opportunity for Nigeria to review the assets and liability sheet of the Asset Management Company of Nigeria (AMCON) and unwind it into the National Deposit Insurance Commission (NDIC). 

He further stated that a stabilization insurance fund should be established from stamp duties, to act as a tool for setting up a bridge fund in the event of a bank run, and liquidation to provide backup. Kelvin Emmanuel also made a case for the Senate to amend the BOFI act to separate banking regulation from banking practice regulation. He also stressed the need for the Senate to amend the BOFI act to create the role of ombudsman in the stead of the Financial Reporting Council of Nigeria.

He added that the Senate needs to amend sections 13(4) of the BOFI act to create a Chinese wall between the asset and liability management of Holdcos and that of core banking operations in the model of the Volcker rule. “It is important to prevent banks from using customer deposits to do proprietary trading in off-balance sheet mark to market operations, that can pose a systemic risk to the capital adequacy ratio of tier 1 banks.”