Several recent high-profile bank failures in the United States triggered concerns about the stability of the American financial system and economy, but promotional products executives ASI Media spoke with say the impacts to the promo industry have so far been limited; at this point they don’t expect widespread business fallout.

During the week of March 6, Silvergate, a central lender to the crypto industry, said it would shut down. On March 10, Santa Clara, CA-headquartered Silicon Valley Bank (SVB) failed, with New York-headquartered Signature Bank following suit on March 12. The federal government has seized Silicon Valley and Signature.

Promo Connections

ASI Media has learned that multiple promo companies had accounts with SVB, including California-headquartered Top 40 distributor Nadel (asi/279600). Company President Craig Nadel, a member of Counselor’s Power 50 list, doesn’t expect the situation to cause significant financial or operational issues.

Nadel explained that an England-based promo company that the distributorship owns and that goes to market under the Nadel brand had a small account tied to its U.S. operations with SVB.

He elaborated that the Top 40 distributorship’s main bank account is secure with Comerica Bank, and he anticipates that funds in the smaller SVB account will be completely restored.

“I don’t have a crystal ball, of course, but I think this situation will not be that impactful for the economy overall.” Craig Nadel, Nadel

“We’re confident that we will be made whole,” Nadel told ASI Media, adding that the distributorship is operating normally without issues.

To Nadel’s point, the Federal Deposit Insurance Corporation (FDIC) insures deposits of up to $250,000, and the Nadel company’s cash total at SVB was less than that.

Even if the Nadel firm’s tally exceeded $250K, the company would still be getting all its money back. That’s because the Federal Reserve, Treasury and FDIC announced on March 12 that they will see to it that all depositors in SVB and Signature Bank – including those with deposits above $250,000 -- will receive their funds back in full. Silvergate Capital on March 8 announced that it will liquidate its La Jolla, CA-based subsidiary Silvergate Bank and plans to fully repay deposits.

Client Concerns

The bank failures sent shockwaves through the economy.

Regional bank stocks, for instance, were routed Monday, March 13 amid failure contagion and bank run fears. On Tuesday, March 14, certain of those banks were “clawing back from their worst selloff in three years, a sign that regulators’ emergency measures to contain the Silicon Valley Bank crisis are calming investors,” though it was too soon to definitively sound an “all clear,” The Wall Street Journal reported. That latter point was reemphasized Wednesday by bank fears spreading to Europe, a wobble back to domestic stock market declines, and other market concerns.

SVB held about $175 billion in customer deposits and $209 billion in total assets as of the end of 2022. The bank’s sharpest focus was on technology/start-up companies, with the 1983-founded institution billing itself as “the financial partner of the innovation economy” and a provider of banking services to almost half of all venture-backed technology and life-science companies in the U.S.

The New York Times reported on March 10 that some firms with accounts in SVB – including TV streaming provider Roku – were reeling Friday as they lost access to their SVB-held money. An executive at CompScience, a workplace-safety analytics start-up, told the Times it was temporarily halting spending on marketing, sales and hiring as it worked to afford payroll.

Such admissions raised the question of whether companies directly affected by the fallout of the bank failures – as well as potentially others that rely on business with those companies – may pull back on their promo product spending. Some industry executives see that as a possibility, at least in the short-term.

“I would speculate that any tech-focused startups that received seed capital or venture money would be the most at risk for delayed or limited access to their own capital or even daily banking needs,” said Andy Shape, CEO of Massachusetts-headquartered Top 40 distributor Stran & Co. (asi/337225) and a Power 50 member. “As such, there may be some exposure for distributors whose customers are in that venture-backed category where extended payment terms or risk of non-payment may be a reality.”

Shape continued: “Overall, however, I think companies that have a solid business model, a strong balance sheet, and are fairly well diversified with their cash management should not have too much of a negative long-term impact.” 

The FDIC backstop news broke while a plane full of techies was flying from SXSW to SF. They broke out in cheers. https://t.co/of5LnxA9kV

— erin griffith (@eringriffith) March 14, 2023

Nadel does considerable business with clients in Silicon Valley. Company President Craig Nadel said the SVB bank failure has caused a lot of buzz among such customers, but noted that there have been no business drawbacks or warnings of delayed payments or inability to pay from those clients. To the contrary, in fact.

“We actually had some clients reach out to say that they did bank with SVB but that they’re doing fine and they intend to keep paying us,” Nadel told ASI Media, with he and others pointing out that the government guarantee of money back for depositors has likely helped limit damage.

Said Nadel: “I don’t have a crystal ball, of course, but I think this situation will not be that impactful for the economy overall.”

Kimberly Karp, who leads San Francisco-based KK Promotions, an affiliate of Top 40 distributor Proforma (asi/300094), said that her local client base is doing well. “There’ve been no adverse impacts to my business,” Karp said. “Our client list is diversified; we provide solutions to many industries, from tech and wine to luxury. No client is affected to date.”

Mike Wolfe, CEO of Top 40 distributor Zorch (asi/366078), said he isn’t worried about potential knock-on effects from the bank failures. “All of our clients bank with larger institutions, so we don’t have any concerns,” Wolfe told ASI Media. “I don’t think there will be any broader issues.”

Another 2008? Not Likely, Say Analysts

While the collapse of SVB and Signature frighteningly echoes the 2008 financial crisis that spawned The Great Recession, analysts say things are different this time around and currently don’t believe the three recent bank failures alone will plunge the United States into a deep recession. “We probably aren’t looking at a systemic financial crisis,” writes economist/opinion columnist Paul Krugman.  

The SVB failure appears to have occurred, in part, due to mismanagement at that particular bank. For one thing, the bank was overexposed in the tech/startup sector, and when economic conditions worsened for such firms following a COVID-era boom, SVB depositors started to draw down funds. SVB then had to sell off its U.S. government bonds at losses and there was a run on the bank, which crushed it.

In Opinion

"SVB isn't Lehman, and 2023 isn't 2008," Paul Krugman writes of the recent collapse of Silicon Valley Bank. "We probably aren't looking at a systemic financial crisis." https://t.co/VVbsLaLjNh

— The New York Times (@nytimes) March 14, 2023

“SVB collapsed because of a stupid rookie mistake with their interest-rate-risk management: They invested short-term deposits into long-term bonds. When interest rates rose, the value of the bonds fell, wiping out the equity of the bank,” James Angel, an expert on regulation of global financial markets at Georgetown University, told Al Jazeera.

Signature, described as one of a handful of financial institutions allowing customers to deposit crypto assets, blamed its failure in significant part on a bank run prompted by the SVB collapse. “We had no indication of problems until we got a deposit run late Friday, which was purely contagion from SVB,” Barney Frank, a former congressman and Signature board member, told CNBC. Frank also felt the government was quick to seize Signature to “send a strong anti-crypto message.”

Despite the Signature run, the federal government’s quick actions appear to have had a stabilizing effect that, to date, has helped prevent large-scale bank withdrawals that could cripple the financial system and overall economy. Beyond promising that SVB and Signature depositors would receive their money back, the Fed also said it would offer banks loans against their Treasuries and many other asset holdings, “treating the securities as though they were worth their original value – even though higher interest rates have eroded the market price of such bonds,” The New York Times reported.

As Business Insider pointed out, other factors that so far suggest the 2023 bank failures won’t in and of themselves prompt a major recession include the general resilience of the stock market (despite some day-to-day ups and downs), the strength and diversified business models of the nation’s biggest banks (JPMorgan Chase, Bank of America, Citibank, and Wells Fargo), and regulations that remain in place for roughly the 12 biggest banks that help bulwark against a 2008-like collapse.

US companies have stopped talking about an imminent recession https://t.co/Y2JxJE60dU

— Jacob Zinkula (@jacobzinkula) March 13, 2023

While certain economists expect a U.S. recession in 2023, others aren’t convinced there will be one. If the downturn comes, it doesn’t appear at this point that it will be because of the bank failures alone – though possible ripple effects from the collapses, like a potential pullback in lending from small banks, could contribute to an economic retreat. Regardless, promo right now is continuing to get on with its collective workday.

“We haven’t really seen any issues,” said Jonathan Isaacson, executive chair of Top 40 supplier Gemline (asi/56070) and a member of Counselor’s Power 50. “Our own bank is quite solid and we haven’t seen any signs of any kinds of distress. Their financial performance is excellent, and we have a lot of confidence in their management. From our perspective, it’s business as usual.”