What to know about the collapse of Silicon Valley Bank

Good morning and welcome to Essential California Newsletter. Is Tuesday March 14.

It has been a hectic and historic time for the regional banks and tech companies that have their money stored in them.

Silicon Valley Bank, or SVB, collapsed late last week as venture capitalists pulled out billions of dollars in a short period of time. The California Department of Financial Protection and Innovation shut down SVB on Friday and federal regulators stepped in to seize control.

It was the second largest bank failure in US history, followed a few days later by the third largest. On Sunday, federal regulators close New York-based Signature Bank after a run on that bank sparked by fears about the collapse of SVB.

How did this happen?

Basically, everything I know about a bank run I learned from “It is a wonderful life.What happened with SVB followed the same blueprint, but unlike George Bailey’s small-town clientele, SVB managed billions of dollars from tech startups and venture capital firms that pick the winners and losers of the industry. And only on Thursday, those investors and depositors pulled a whopping $42 billion out of SVB.

Times tech industry columnist Brian Merchant summed up the crash like this:

1. The large deposits of SVB “were linked in low interest securities, and came from venture capital-backed companies that were burning through cash faster than expected.”
2. The bank and its many emerging clients are “indebted to a relatively small cadre of venture capitalists,” leaving SVB “uniquely exposed to a run on the bank if those venture capitalists decide to withdraw their funds at the same time.” “.

The catalyst that federal officials and financial experts point to is rising interest rates that have been reducing the market value of the bank’s assets.

SVB’s leadership should have seen this coming, Merchant writes, arguing that the bank’s involvement in an “inherently messy system” put it at risk. He explained:

The past few days have been chaotic for many tech companies that have accounts there and for some of the customers who rely on their services. One such business, Wrapbook, processes payroll for entertainment production companies. The collapse caused payroll delays on Friday and froze the processing of uncashed checks.

US government intervention allowed SVB clients to access their funds again, meaning Wrapbook could resume processing payroll starting Monday. The company said it expects to be “fully operational” for Wednesday.

What is the federal government doing about it?

Rescue depositors.

The US Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation announced last weekend that all depositors with money in SVB would be able to get their money back again on Monday. That includes customers with more than the $250,000 insurance limit covered by the FDIC.

President Biden addressed the issue Monday before his three-day trip to California and Nevada, vowing the bailout would not fall on taxpayers and pledging to hold bank management and investors accountable.

“They knowingly took risks, and when risks don’t pay off, investors lose their money,” Biden tweeted Monday. “This is how capitalism works.”

What does this mean for the economy in general?

Two major bank failures in three days is understandably creating economic anxiety.

In his remarks Monday morning, Biden said that “Americans can have confidence that the banking system is secure.” But Wall Street doesn’t seem so convinced as investors opened the market by selling shares in various regional banks.

First Republic Bank saw its shares fall 78%. Other hard-hit institutions include Western Alliance Bancorp, PacWest Bancorp, and Comerica Inc.

So what about all of us non-VC bank regulars?

“For most people and companies, the right path is to do nothing,” writes Jon Healey, senior editor of The Times’ utilities journalism team.

In his explanation of the bank’s collapse, Healey notes that the average bank account balance among Americans is $5,300 per household, according to a 2019 Federal Reserve Survey. The average amount among US bank customers is $41,600.

FDIC insure our deposits in each bank we use up to $250,000. And since the vast majority of banks are insured through the FDIC (you can confirm your bank’s status using this online directory), the average person with a bank account should be covered if things get worse.

But banking experts say what happened to SVB and Signature Bank were a unique set of circumstances that do not indicate a widespread fatality.

Add to that the government’s “aggressive” response on Monday, Healey writes, and analysts argue that “depositors at other banks may stay put rather than go into crisis mode.”

And now, This is what is happening in California:

Note: Some of the sites we link to may limit the number of stories you can access without subscribing.

POLITIC AND GOVERNMENT

Officials and engineers have known for decades that a levee that collapsed in Santa Cruz County during the weekend storm was at risk of collapse. As my colleague Susanne Rust reports, the repairs to the Pajaro River levee were never done “in part because they believed it didn’t make financial sense to protect the low-income area.” Los Angeles Times

The California Community College system is exploring ways to reduce the financial burden that textbook costs place on many students. One idea that some campuses are pursuing is to publish their own textbooks and course materials. CalMatters

California Democrats are pushing to strengthen the state’s role as a haven for abortion rights. Lawmakers introduced a package of 17 bills on Monday, including some aimed at improving privacy protections. Los Angeles Times

In the high-profile race to fill the Los Angeles City Council seat left vacant when Nury Martinez resigned, some large progressive groups have kept a low profile. Some far-left activists point to weaker ground in the San Fernando Valley district, which includes the Lake Balboa, North Hollywood, Van Nuys and Sun Valley neighborhoods. Los Angeles Times

HEALTH AND ENVIRONMENT

Sierra snowpack is now more than 200% of your average for the beginning of March. That’s more good news in the short term, as much of the state marks degraded drought statuses, but experts warn that more wild swings are in store for California in the long term. the sacramento bee

The lobster industry on the east coast is taking on the famous aquarium on the west coast. Through its Seafood Watch program, the Monterey Bay Aquarium put American lobsters on its do not eat list, citing threats to rare whales that could become entangled in fishing gear. Maine Lobstermen’s Association. and other industry groups are now suing the aquarium for defamation. Associated Press

CALIFORNIA CULTURE

Tired: bike tours. Wired: bike tours. Now you can sit back, relax, and enjoy the scenery as you pedal (with electric assistance) along 17 miles of railroad tracks in Ventura County. Los Angeles Times

When Cerritos College basketball coach Russ May put Kade West, who is deaf and has autism, in a game late last year, it marked a beautiful moment for the passionate player, his team and his fans. But the coach had broken an ordinance by leaving the 20-year-old play, leading to a suspension, a lost game, and West temporarily stripped of his uniform. Los Angeles Times

AND FINALLY

from today california landmark is from Tuck Donnelly from Santa Barbara: Point Conception.

Point Concepción, photographed in 2007.

(Courtesy Tuck Donnelly)

Donnelly writes:

What are California’s essential landmarks? Fill out this form to send us your photos of a special place in California — natural or man-made. Tell us why it’s interesting and what makes it a symbol of life in the Golden State. Be sure to only include photos taken directly by you. Your presentation may appear in a future issue of the newsletter.

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