Trade Credit Insurance for business is more relevant than ever these days. The sudden failure of the Silicon Valley Bank (not to mention Silvergate and Signature) has the potential to lead to greater issues. We asked several RIAC members for their thoughts on the situation:
According to Atradius “Risk of broader bank contagion is a serious concern and the government stepped in aggressively … to guarantee deposits to help stem mob mentality that was fomenting…it’s likely more intervention will be needed”.
Specialist Broker OneSource takes a broader look at the philosophy behind these rescues when they ask “Furthermore, is there moral hazard in continuing to bail out failed financial institutions? What lessons are learned when losses get socialized?”
Specialist Broker Elevate Global also has a view of the larger picture “The results of the dramatic increase in interest rates are now starting to be known. The economists all knew that it would take 6-12 months to start seeing this. A good bet would be that The Fed is having some real conversations, ahead of their next rate setting about pausing for a while so that they can see the real effects on the economy.”
Consider these points of view in context with the Atradius comment “More broadly, the concern here is tighter lending conditions that could choke off credit to SME’s exactly as the economy is starting to wobble.”
Closer to home (keeping in mind that Silicon Valley Bank Canada is now controlled by OSFI) Specialist Broker CreditAssur relates the story “Some time ago, a US bank went into receivership. My policyholder’s best friend and client couldn’t get financing through a traditional institution in Canada and resorted to financing his company through a US financial institution. The friends were happy dealing with each other. You can imagine my policyholder’s surprise when he learned his best friend went bankrupt because his bank’s receiver called his loans.”
Finally, EDC comments “This is another example of an event that happens quickly and the inextricable links to other sectors or segments of the economy that are not immediately obvious…with impacts being felt immediately or longer term thus reinforcing the benefits of having credit insurance in place to protect businesses from unexpected losses.”
It is still important to consider credit insurance as a tool for managing credit risk, even during times of financial stress. While it may not be possible to obtain coverage for losses that have already occurred or are imminent, credit insurance can still be a valuable tool for managing future credit risk.
Major credit insurers/receivable insurers in Canada can be found on RIAC’s websites https://tradesecurely.ca/ and https://receivablesinsurancecanada.com/our-members/