A month after the collapse of Silicon Valley Bank, the fallout is just beginning for the ad industry

By Seb Joseph

It’s hard to know how this bank mess will shake out for the ad industry. But there are clues of a correction that was a long time coming.

What has transpired in the month after the collapse of Silicon Valley Bank has been a protracted reality check of sorts for entrepreneurs and CEOs in advertising.

The bank’s decline was a harsh reminder that in a fractional banking system, companies’ money is not really at the bank — and it never has been. Really, it’s being loaned out to others for various lengths of time and doesn’t have to be returned until that period is up. So when things go sideways and people rush to take all their money back from a bank, those same people are usually surprised to realize that it’s not actually there.

No prizes for guessing what happened when Silicon Valley Bank imploded.

“We initially had one publisher reach out to communicate their desire for us to hold any payments to their accounts at Silicon Valley Bank because they had a concern about it, but then very quickly there was a tsunami of publishers asking the same thing,” said Andrew Casale, CEO of Index Exchange.

Ad execs, like so many other customers of the bank, were dunked into disarray.

One of them told Digiday that they immediately started working with investors to thrash out a bridge loan. Another told Digiday that their ad tech business lost all of its funding because of the financial meltdown. AcuityAds, which had over 90% of cash in the bank, had to halt the trading of its stock. Others like Place Exchange asked all clients to pause any scheduled payments until further notice.

And all of that was just in the first few hours of the run on the bank.

Then the panic subsided. Silicon Valley Bank was backstopped by the Federal Deposit Insurance Corporation and the government. Ad execs, and the rest of the bank’s customers, were able to access their money.

Catastrophe averted? Not quite. The collapse of Silicon Valley Bank shook a lot of chaff loose. And ad execs are starting to see things they may not have anticipated: namely that confidence in banks is all relative.

Look at what happened to Credit Suisse, for instance. It didn’t get singed in the wake of Silicon Valley Bank’s implosion because there was something inherently unstable in it. It got burned because it was seen as the weakest link — just like Bear Stearns and Lehman Brothers before it. And once those narratives are up and running, they’re hard to stop. Banks are built on confidence.

“We had never considered the origin bank account of a customer or a partner to be a risk vector up until now,” said Casale. “That’s been the biggest takeaway for us from this tough period; we’ve been doing the homework on our side to understand the organization of our customers across the banking sector.”

It’s a tough lesson for anyone — let alone those in an …read more

Source:: Digiday