By the time a run on a bank begins, its business is already in trouble. Silicon Valley Bank (SVB), which specialized in venture capital, was shut down on the morning of Friday, March 10, by the California branch of the Federal Deposit Insurance Corporation (FDIC) after massive withdrawals by clients on March 9 and 10.
SVB was the 16th-largest US banking institution, with $210 billion (€197 billion) in assets, and the largest bank failure since the 2008 financial crisis. The bank, now controlled by the FDIC, will reopen on Monday, with deposits up to $250,000 guaranteed under federal law. Beyond that, it all depends on how much money is recovered when the bank is liquidated or sold. At the end of December 2022, SVB held $175 billion in deposits.
The case poses a short-term threat to many venture capital firms, particularly in the San Francisco and Boston areas, where the bank was located. The number of companies that have successfully withdrawn their funds is not known, but it is very likely that many start-ups, which raise cash that they then gradually burn through, have deposits well in excess of the guaranteed $250,000.
The first victims are starting to be announced. Roku, a streaming start-up, announced that it had deposited $487 million, or a quarter of its cash, in SVB. Silicon Valley is worried. “The real victims of the SVB fallout are the depositors: startups (10 to 100 employees) who cannot make payroll, and will have to shut down or furlough *next week* If these startups wait weeks/months for their deposits, we have destroyed a generation of US startups, *at random,” tweeted entrepreneur Garry Tanwho helps startups.
The silence of Treasury Secretary Janet Yellen and US Federal Reserve Chair Jerome Powell is beginning to cause annoyance, as evidenced by entrepreneur and investor David Sacks’ tweet: “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.”
We are interested in your experience using the site.
Questions about SVB’s management
The panic began on March 8, when SVB announced that it had liquidated a $21 billion portfolio of bonds and treasury bills and suffered a $1.8 billion loss. The bank was caught up in the Fed’s rate hike, which pushed the cost of money up from zero to more than 4.5% in one year. The treasury bonds it had bought to invest the deposits of its customers – start-ups that took advantage of the Covid-19 free money period to raise capital – lost value as rates rose.
You have 65.41% of this article left to read. The rest is for subscribers only.