Big names in Silicon Valley and the financial sector are publicly calling for the federal government to push another bank to take over the assets and liabilities of Silicon Valley Bank after the financial institution failed on Friday.
The Federal Deposit Insurance Corporation (FDIC) will cover up to $250,000 per depositor and may be able to begin paying those depositors as early as Monday.
But most of SVB’s customers were businesses that had more than that on deposit at the bank. As of December, more than 95% of the bank’s deposits were uninsured, according to regulatory filings. Many of these investors are startups, and many are worried that they won’t be able to make payments this month, which could then trigger a widespread wave of failures and layoffs. promotion in the technical industry.
Investors are concerned that these failures could reduce confidence in the banking sector, especially mid-sized banks with less than $250 billion in deposits. These banks are not considered “too big to fail” and do not have to undergo regular stress tests or other safety valve measures approved in the wake of the 2008 financial crisis.
Venture capitalist and former tech CEO David Sacks called on the federal government to push another bank to buy SVB’s assets, write on Twitter“Where is Powell? Where is Yellen? Stop this crisis NOW. Notice that all investors will be safe. Place SVB with a Top 4 bank. Do this before Monday’s open or there will be contagion and the crisis spread.”
VC Mark Suster agreed, tweeting, “I suspect this is what they’re working on. I expect reports by Sunday. We’ll see. I’m sure either that or Monday will be brutal.”
Investor Bill Ackman made a similar argument in a a long tweetwrites, “The gov’s have about 48 hours to correct an irreversible mistake soon. By allowing @SVB_Finance to fail without protecting all investors, the world has woken up to what an uninsured deposit is – an unsecured unsecured claim on a failed bank. Absence @jpmorgan @citi or @BankofAmerica getting SVB before Monday’s opening, a scenario I believe is unlikely, or the government guaranteeing all of SVB’s investments, the big squealing sound you’ll hear is the taking out of investments largely uninsured from all but the regularly important. banks’ (SIBs).”
Featured Partner Eric Vishria write“If SVB investors are not made whole, corporate boards will have to require their companies to use two or more of the four BIG banks exclusively. That will hurt smaller banks. AND make the problem worse big to fail worse.”
Since its founding almost 40 years ago, SVB has become a financial hub in the tech industry, especially for startups and the VCs that invest in them. The company was known for extending banking services to early-stage start-ups that would have struggled to get banking services elsewhere before generating a steady cash flow. But the company itself had cash flow problems this year as start-up funding dried up and its own assets locked up 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 had sold all of its available-for-sale bonds at a loss of $1.8 billion . Assurances from bank executives were not enough to stop the run, and investors withdrew more than $42 billion by the end of the day Thursday, setting up the second largest bank failure in US history.
Many in the tech community blamed VCs for fueling the run, as many want their portfolio companies to put their money in safer places after SVB’s Wednesday announcement.
“This was a bank run caused by hysteria caused by VCs,” 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 cutting its nose to spite its face. “
Observers are calling out the irony that some VCs with notoriously libertarian views on the free market are now asking for funding. For example, comments on Sacks’ tweet included statements like “Excuse me, sir. Suddenly the government is the answer?!?“and”We capitalists want socialism!“
Some politicians opposed any bailout, with Rep. Matt Gaetz, R-Fla., fall“If there is an attempt to use taxpayer money to protect Silicon Valley Bank, the American people can count on me to be there leading the fight against it.”
But financier and former Trump communications director Anthony Scaramucci an argument“It is not a political decision to give financial support to SVB. Don’t make Lehman’s mistake. It’s not about rich or poor who benefits, it’s about stopping contagion and protecting the system. unintended consequences.”
– Hugh Mac and Ari Levy contributed to this story.
