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That giant sucking sound you hear is billions of startup dollars going into these 4 banks

SVB bank
SVB Financial's collapse is leading startup founders to look for safety amid the nation's biggest banks. Dado Ruvic/Reuters

  • Over $200 billion in cash deposits is up for grabs from SVB and Signature Bank customers.
  • Founders are finding comfort in the safety of "too big to fail" banks, like JPMorgan Chase.
  • But they are worried about the trend backfiring and "being bad for the customer."

Ashley Tyrner, the founder of the Boston-based health foods startup FarmboxRx, was on vacation with her family in Costa Rica when she received a flurry of texts from her chief operating officer. Silicon Valley Bank was going under and the startup needed to move "eight figures" worth of deposits out as soon as possible. 

"The last 24 hours of my life have been the most challenging of my professional career, probably my entire life to date," Tyner told Insider on Friday about the company's scramble to get its money out of SVB.

FarmboxRx also had accounts with First Republic and Bank of America. But it wasn't enough. 

"I just had this conversation with my chief operating officer," Tyrner said. "We need to be where the economy is going. You've got to have your funds in a JPMorgan Chase, a Wells Fargo or a BofA." 

Tyrner is far from alone. For years, SVB was the go-to bank for Silicon Valley tech founders. Now, in the wake of that bank's swift and startling collapse, they are faced with a new imperative they hadn't considered before: Diversify their assets or risk facing another bank blowup. It's a dynamic only now unfolding that sets some of the nation's biggest banks, from JPMorgan to Bank of America, to be among the top beneficiaries — giving them an ever tighter lock on the market. 

"We plan to spread our funds across a few accounts including at least one Big Four bank to minimize disruption in the event of a repeat," said Aditi Shekar, founder and CEO of Zeta, referring to a group that includes JPMorgan, Bank of America, Citi, and Wells Fargo. 

"That said, I am worried that this bias towards a Big Four bank is a double-edged sword," Shekar added. "Consolidating in the Big Four also means reduced competition…which invariably ends up being bad for the customer."

JPMorgan and Bank of America declined to comment. Wells Fargo did not respond to a request for comment. 

JPMorgan expediting orders 

At this point, it's difficult to quantify the amount of funds moving into large banks, but more than $200 billion is up for grabs. SVB held roughly $175 billion in deposits. Signature Bank, which the FDIC also placed into receivership over the weekend, had $89 billion. 

Plus, founders who concentrated their assets in other banks, like First Republic, are also moving money around in a trend that's only expected to grow. 

"You're going to see every board member tell people to keep your money in multiple bank accounts," said Wesley Chan, cofounder and managing partner at FPV Ventures.

Startup founders say the Big Four banks are a key part of the diversification effort.

"My recommendation and the position that I know a lot of people are taking is, 'Go with the majors for now to backstop until we know what the broader implications are,'" Carla Matheson, a startup founder and the founder of financial advisory firm CSM Insights, told Insider. 

On Friday, the New York Post reported that JPMorgan bankers were working around the clock to help existing customers transfer money or new customers open accounts  — including by expediting "know your customer," or KYC, verification processes. 

"Shout-out to the back office clerks at JPM, BofA, and Citibank who are grinding through the night processing KYC packs and opening accounts for the thousands of SVB companies scrambling. We see you, we appreciate you," wrote one founder on Twitter Saturday

The founder didn't respond to a request for comment via a Twitter message. 

In a note to clients Monday, Wells Fargo bank analyst Mike Mayo wrote that JPMorgan in particular is "battle-tested" in volatile markets and "epitomizes" how the largest US banks have shed risk since the 2008 financial crisis. 

"Recent industry developments should further its ability to gather core funding and act as a source of strength," Mayo wrote. 

At least one current Bank of America customer on Monday exemplified the calm that customers of the largest banks likely feel this week amidst market chaos. 

"I'm not concerned about Bank of America," one business owner said as they left a Bank of America branch on Monday. "I was surprised that Signature went down last night, but I understand why."

High fees, lower rates

Of course, there could be a price to pay in the flight to safety. Several founders told Insider they are concerned about losing some of the perks they have grown accustomed to at banks like SVB that cater to startups. 

Big banks can be less competitive, for example, on interest rates because of the security they offer. 

"People were already complaining that the larger banks weren't paying out very much on deposits. "You could argue that this could make that even worse," Alexander Yokum, an equity research analyst at CFRA, told Insider. 

"The entire banking industry will probably have lower profits as they have to handle this. Comparatively, they might end up being in a stronger position, but on a standalone basis, maybe not," Yokum added. 

Fees could also rise, Mark Flannery, a finance professor at the University of Florida's Warrington College of Business, told Insider. 

"As the demand for the big banks' services increase — the deposit services, the related services, and the stability guarantee — you'd expect that as a group, they'd be able to charge more for it one way or another," he said.   

For the British Columbia-based Matheson, Canadian startups in particular are worried about the costs they'll now pay to larger banks for cross-border wires. SVB, Matheson said, had a wide array of connections to Canadian startups and "was a phenomenal lender, especially for Canadians. We don't see a lot of risk appetite the way that we did with SVB up here."

"What I've been talking to a lot of clients about in the last 48 hours is just the cost of transactions. I think you'll see startups, in particular, questioning moving to the big banks given just how much more expensive it is," Matheson added.  

Should the nation's largest banks receive a huge influx of new deposits, they could also come under more scrutiny than they have received in the post-crisis era. 

"Mark Twain said that if you're going to put all your eggs into one basket, you better watch the basket closely," the University of Florida's Flannery told Insider.  "The big banks are in very good shape, and so it probably is a stabilizing decision to move those deposits. But the bigger they get, the more solid their too-big-to-fail guarantee is."

 

JPMorgan Bank of America Wells Fargo

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