Silicon Valley Bank (SVB) in Santa Clara, CA, called itself “the financial partner of the innovation economy” and had over $342 billion in deposits – including money from many influential venture capitalists, start-ups and technology companies.
That was before last week, when a sudden run in the bank opened the door to the prospect of a bigger collapse in the financial system. After a weekend, the Biden administration, the US Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. (FDIC) a way to cover the full value of SVB deposits above the $250,000 federally insured ceiling. (The same applies to Signature Bank, which also failed.)
The move, which is likely to save many tech jobs, came just in time – the hysteria quickly began to build. “Depositors will have access to all their money from Monday, March 13,” the government announced late on Sunday. “No losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers.” Instead, funds will come from the Federal Reserve and the Treasury’s Exchange Stabilization Fund, which are funded by federal bank charges.
Mind you, people doing business with companies like Bill. com, which is dependent on the SVB, is still experiencing problems. René Lacerte, CEO and founder of Bill.com, wrote yesterday that, “while the government has now intervened, the timing of the pending payments may take several days. We will continue to work with our financial and regulatory partners to ensure that any future actions we take minimize the impact for our customers.”
So, who is to blame? Greg Becker, SVB’s CEO, who sold $3.6 million in company stock few days before the collapse of the bank, will surely face many questions. Billionaire venture capitalist Peter Thiel’s Future Fund, which led the bank’s first runis also blamed for the collapse.
However, behind all this lay financial problems that had been going on since 2022. As Rich Falk-Wallace, CEO of Arcana, a digital access research firm, explained in a LinkedIn post, “The Fed raised rates, making all depreciation of long-term debt, including the assets of the SVB.” He noted that the bank had already suffered billions in losses in December.
Then last week SVB announced it had sold $21 billion in assets at a loss of 9%, shocking savers and investors even as the bank said it would raise money to offset the losses. And so the bank run had begun.
SVB was unable to cover the withdrawals and was $1 billion in the hole when the FDIC took over on Friday.
President Biden stated afterwards that “the American people and American companies can have trust that their bank balances will be there when they need it.” He also said banking supervision rules, which have been weakened under President Trump, will be strengthened.
Still, panic is lurking and the technology industry is still worried. Who can blame them? Many startups had already put their VC cash eggs in the SVB basket. It wasn’t just startups, though. Rokuthe power of streaming hardware, had $487 million, about a quarter of his cash, in SVB accounts. The $250,000 in FDIC insurance wouldn’t help Roku much! And while networking giant Juniper had only 1% of his money in SVB, those accounts represented his day-to-day work money.
You can see how even one bank failure, especially one that plays such a prominent role in technology, could have been the start of something bad.
And yet, while banking trading was volatile Monday morning, the financial markets appear to be holding up. Indeed, the The NASDAQ 100 Technology Sector was on the rise.
That was precisely the point of the weekend’s action, according to U.S. Representative Jeff Jackson (D-NC). “It was repeatedly emphasized that the purpose (and legal basis) of this decision was to limit contagion. No one (in Congress) disagreed with the Treasury Department’s fundamental decision to make depositors healthy.”
Given the political climate in Washington, D.C., you could assume finger-pointing was rampant, but Jackson said there’s not (yet) a major debate over whether the government should have bailed out SVB and Signature’s clients. Instead, “most of the questions were members seeking reassurance that the steps the Treasury announced would be enough to stop the contagion. Questions alternated between Republicans and Democrats, and most of us asked some version of the same question: “Will this be enough?” Second, with one exception, everyone treated the situation with the seriousness it deserves. Boasting and bickering were present, but essentially minimal.”
As far as we can see at this point, when it came down to it, the government did what it had to do and focused on solving the problem it faced. In addition to dealing with two troubled banks, it may also have prevented an earthquake that could have shaken the tech industry, undermined many start-up companies before they even started, and ended a panic that could have shaken us all. meet.
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