Netanyahu calls for calm as SVB failure spooks Israeli tech firms

US lender's collapse is the largest since the 2008 financial crisis

Israeli tech workers demonstrating against the government's proposed judicial reforms. Bloomberg

The collapse of the US-based Silicon Valley Bank (SVB) has rattled Israel’s vital high-tech sector, with the country’s shares dropping and Prime Minister Benjamin Netanyahu considering government intervention to assist Israeli firms “in distress”.

The folding of SVB, America’s 16th-largest bank, marks the biggest collapse of a lender since the 2008 financial crisis and has led to the US seizing assets in a bid to stop the crisis spreading into the wider economy.

Fears are particularly high in Israel, which has a disproportionately large tech sector that employs around 10 per cent of the country’s workforce. Israel is often referred to as the “startup nation”.

At a weekly cabinet meeting, Mr Netanyahu said “we of course cannot ignore the collapse”.

He also sought to assuage fears, urging people to ignore “the advice of panicky managers in the Israeli media because whoever did so, did not do the right thing economically”.

The Prime Minister went on to say that Israel has “one of the most secure and stable economies in the world”.

US stocks slumped Monday with key indexes markedly lower amid worries over the banking system after the SVB collapse. AFP

Economist David Rosenberg told The National that "there are some estimates that a third of Israeli tech companies have a relationship with SVB, whether in deposits or credit lines".

"The tech sector is the engine of the Israeli economy, so when it suffers so does everything else," Mr Rosenberg said.

"The bottom line is that the impact of SVB’s collapse is not yet fully understood, but compared to the situation at the end of last week it looks more promising than before, now that the US is stepping in forthrightly to address the problem."

Israeli Finance Minister Bezalel Smotrich has formed a group to investigate the effects SVB’s collapse might have on the economy. The country’s two largest banks have established mechanisms to help companies withdraw funds held there.

Mr Rosenberg said that "this is the kind of issue where a finance minister must provide leadership. If he is prepared to follow the advice of the Treasury and the Bank of Israel then firms will be in a good position to withstand the collapse".

"On the economy, certainly compared to other policy fields, he has been relatively responsible," he said.

Mr Smotrich has come under intense criticism for his far-right agenda in recent weeks, most notably in calls for the Palestinian town of Hawara to be "wiped out". He later apologised about the comments.

The bank’s failure comes as large parts of the country’s workforce mobilise against government plans to radically alter the judicial system.

Much of the highest-profile objection is coming from Israel’s vital startup and high-tech sectors, who fear that the measures will spook investors and weaken key institutions that safeguard an open economy.

On Monday, 250 US investors said the reforms risk reducing investment into Israel from abroad.

Last week, the Moody’s rating agency said the overhaul could weaken Israeli institutions and the economy.

Mr Rosenberg believes the wider state of the global tech sector, which has recently seen a downturn, and Mr Netanyahu's judicial reforms represent greater uncertainty than "short-term" panic over the collapse of the US bank.

"There is far less capital in the Israeli tech industry than in recent years. In 2021, a record year, Israeli startups raised about $26 billion. Last year that fell to about $15 billion, and this year there are estimates it could lower to between $4-6 billion, more or less the level it was four or five years ago.

"For an industry that was getting used to double digit fundraising that’s a pretty big downturn."