In this Small Business Update event held on March 17, 2023, we examine recent bank failures and their potential impact on small businesses.

On March 10, 2023, the Federal Deposit Insurance Corporation (FDIC) announced that it was taking over operations at Silicon Valley Bank (SVB), the 16th-largest bank in the country. Two days later, Signature Bank was shut down by New York state regulators.

Both bank failures — the second- and third-largest incidents in U.S. history, respectively — happened because numerous depositors simultaneously withdrew their funds in the wake of major investment losses and fears that the banks would soon become insolvent. Account holders at SVB and Signature Bank were temporarily unable to access or withdraw funds until the government unfroze them on Monday, March 13. This meant no new purchases could be made and any pending transactions were stuck in limbo.

Many small businesses that didn’t directly bank with SVB or Signature learned about the collapses through communications from third-party partners whose payment services were stalled because they banked with one of the failed institutions. Etsy sellers received a notice that their payments would be delayed. Customers of payroll providers that distributed employee paychecks from an SVB account were advised to attempt to have their own banks reverse pending payroll debits and wire the funds directly to the provider to ensure timely direct deposits. Businesses whose clients paid using funds held at one of these banks were informed that invoices could not be paid until they transitioned to a new financial institution.