SVB Failure: The Impact on Private Credit

Although the dust has not yet settled, we think it’s a good time to pause and consider the implications of the recent Silicon Valley Bank (SVB) collapse. Our view is that it could be a negative for small and middle-market borrowers and a positive for private credit.

We believe this event will tighten the availability of credit as small and mid-sized banks similar to SVB shore up their balance sheets to encourage shareholder confidence. We also believe the event will have significant consequences for credit market structure. Specifically, we anticipate regulators will tighten oversight of medium-sized banks, leading to reduced credit availability for higher-yield borrowers. Finally, we expect depositors to move more of their balances from smaller to larger banks. Since large banks tend to make larger loans, we believe smaller businesses will find it disproportionately harder to access bank credit.

The upshot is that the SVB collapse is a trigger we believe will further accelerate the transition of credit away from banks and into the private markets, especially for smaller businesses.

Bank Credit Availability Will Tighten

Coming into the events of March 2023, banks were already tightening credit standards for clients because of recession risk and persistent inflation. Each quarter, the Federal Reserve surveys bank loan officers to understand changes to their credit standards over the prior quarter. For the fourth quarter of 2022, the net tightening of credit standards represented the worst reading—absent the Covid blip in 2020—since the Great Financial Crisis.


Bank credit tightening

Source: Board of Governors of the Federal Reserve System, Senior Loan Officer Opinion Survey and FRED Economic Data (

With the collapse of SVB, we believe banks will further tighten lending standards to ensure they are not the next target for a bank run. Though SVB’s failure was primarily due to poor asset liability matching, no bank will want to show vulnerability and provoke their own bank run. While it’s nearly impossible for banks to immediately change the risk characteristics of a loan portfolio, we expect newly issued loans to undergo intense scrutiny and many current borrowers to struggle to extend existing lines of credit.