Investors urge government to step in after Silicon Valley Bank failure

Employees stand outside the closed Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.

Justin Sullivan | Getty Images

Big names in Silicon Valley and the finance sector are publicly calling on the federal government to push another bank to assume Silicon Valley Bank’s assets and liabilities after the financial institution failed on Friday.

The Federal Deposit Insurance Corporation (FDIC) will cover up to $250,000 per depositor and could begin paying those depositors as soon as Monday.

But most of SVB’s customers were businesses that had more than the amount on deposit in the bank. As of December, more than 95% of the bank’s deposits were not insured, according to regulatory filings. Many of these depositors are startups, and many are worried they won’t be able to make payroll this month, which could spark a sweeping wave of failures and layoffs across the tech industry.

Investors are concerned that these failures could undermine confidence in the banking sector, especially mid-sized banks with deposits of less than $250 billion. These banks are not considered “too big to fail” and do not undergo routine stress tests or other safety valve measures in the wake of the 2008 financial crisis.

Venture capitalist and former tech CEO David Sachs called on the federal government to give the go-ahead to another bank to buy SVB’s assets. writing on twitter“Where’s Powell? Where’s Yellen? Stop this crisis now. Announce that all depositors will be safe. Put SVB in a top 4 bank. Do this before the open on Monday or the infection will spread and the crisis will spread.”

VC Mark Suster agreed, tweeting, “I suspect they are working on it. I expect statements by Sunday. We’ll see. I sure expect Monday to be brutal.”

Investor Bill Ackman made a similar argument. long tweetwrites, “The government has approximately 48 hours to correct a soon-to-be-irreversible mistake. By allowing @SVB_Financial Without the protection of all depositors to fail, the world has woken up to what is an uninsured deposit – an unsecured illegal claim on a failed bank. absent @JP Morgan @City Or @Bank of America Getting SVBs before they open on Monday, a possibility I believe is unlikely, or the government not guaranteeing all deposits of SVBs, that huge sucking sound you’ll hear from pretty much everyone. Uninsured deposits will come back, but ‘systemically important’ banks (SIBs).”

Benchmark Partner Eric Vishria wrote“If SVB depositors are not made exhaustive, corporate boards will have to insist that their companies exclusively use two or more of the Big Four banks. That will crush the smaller banks. And make the problem worse. would make it too big for.”

Since its founding nearly 40 years ago, SVB has become a focal point of finance in the tech industry, especially for startups and the VCs investing in them. The firm was known for extending banking services to early-stage startups that would struggle to obtain banking services elsewhere before generating steady cash flow. But the firm faced cashflow problems this year as startup financing dried up and its own assets were locked in long-term bonds.

The company surprised investors on Wednesday with news that it needed to raise $2.25 billion to shore up its balance sheet, and that it sold all of its available-for-sale bonds at a loss of $1.8 billion. Reassurances from bank officials were not enough to stop a run, and depositors pulled out more than $42 billion by the end of the day on Thursday, the second largest bank failure in US history.

Many in the tech community blamed VCs for the run, as many told their portfolio companies to put their money in safe places after SVB’s Wednesday announcement.

“It was a bank run driven by VC hysteria,” Ryan Falvey, a fintech investor at Restive Ventures, told CNBC on Friday. “This is going to go down as one of the last cases of an industry thumbing its nose in spite of its face.”

Observers are calling out the irony that some VCs with notoriously liberal free-market attitudes are now demanding bailouts. For example, responses to Sachs’ tweet included statements such as “excuse me sir. Suddenly the answer is government?!?” And “We want bourgeois socialism!,

Some politicians opposed any bailout, including Rep. Matt Gaetz, R-Fla. Tweet“If an attempt is made to use taxpayer money to bail out Silicon Valley Bank, the American people can count on the fact that I will lead the fight against it.”

But financier and former Trump communications director Anthony Scaramucci argued“This is not a political decision to bail out SVB from the crisis. Don’t mistake Lehman. It’s not about rich or poor who benefits, it’s about stopping contagion and protecting the system. Force majeure “

, Hugh Son and Ari Levy contributed to this story.

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