Global shock waves were felt as the weekend set in, with one of America’s largest banks collapsing. Silicon Valley Bank (SVB) is the 16th largest in terms of assets but is most notable as the go-to stop for hi-tech start-ups – particularly in Israel.
The immediate cause for the panic was echoed by leading players, with Finance Minister Bezalel Smotrich announcing the establishment of a committee of representatives from the ministry, the Bank of Israel, the Securities Authority and the Innovation Authority to determine its impact on the economy, and how to take steps to ensure that whatever impact there is, isn’t too great.
The collapse of SVB was met with the typical anti-bankers calling for a move to digital currencies, and the pro-bankers lamenting a consolidation toward big banks – as is already happening.
At the heart of this all, as it pertains to Israel’s economy, is an over-reliance on foreign institutions to protect our capital. The magnitude of the hi-tech sector to the economy is no secret. Today, a majority of the country’s exports are in the services industry, primarily in software and tech. The equation for this growth has been Israeli minds bankrolled by foreign investment.
In Start-Up Nation Central’s 2022 Israel Tech Ecosystem report, start-up investment alone topped $15 billion. Despite this growth, most of its direct impact is seen overseas. This is most evident by the fact that some of the country’s largest tech companies do not even sell domestically – they have zero dollars in revenue in Israel.
The result of this is revenue in dollars or euros, which is fine in itself; the problem stems from the capital being kept overseas in American or European banks. Dubbing itself as the bank to start-ups, an estimated 500 Israeli companies bank with SVB, with holdings in the billions. The failed bank has an office in Tel Aviv with dozens of employees in the country.
How did Israel avoid the worst of the SVB disaster?
Thankfully, since Israel is seven hours ahead of the US, many companies were able to pull out their money prior to withdrawals that the bank run made it near impossible to do. However, many are still scrambling to take out their cash.Quite ironically, in this entire ordeal, this is occurring on the heels of certain prominent companies deciding to transfer their funds out of the country amid the proposed judicial reforms. Being that SVB is a leader in start-up banking and has a strong presence in the ecosystem, it is very likely some of this money – if it left in time – is clogged up in this mess.
The lesson from this should be that despite domestic turmoil or geopolitical threats faced, Israeli entrepreneurs are safer with their money at home rather than in the hands of foreign institutions that they have no control over, never mind being able to understand the vast wilderness of foreign banking.
Israel is fortunate to have one of the strongest banking sectors in the world, with strict lending practices and strong consumer and company protections. This is alongside a sometimes-blessing/sometimes-curse of a very centralized system that allows for quick and efficient action by the Bank of Israel and the other relevant entities.In all, we have likely not seen the whole impact on Israel’s economy. The shock-waves are still to be felt, especially as banks reopen on Monday amid fears of mass bank runs across small banks in the US. Hopefully, this can be a lesson for local entrepreneurs – that rather than looking outside to keep their money, it is safer to keep it in their backyard.
The writer, a Jerusalem Post staff member, is an entrepreneur and Hebrew thinker, known as Osher in Hebrew. A recent oleh, he also helps oversee the start-up ecosystem in Jerusalem with Made in JLM. Twitter: @troyfritzhand