The collapse of Silicon Valley Bank today sparked fears of a contagion in the tech industry with mass layoffs predicted by experts if start-up firms fail to make payroll.
The Federal Deposit Insurance Corporation (FDIC) seized SVB’s assets today after depositors – mostly tech workers and start-up firms – triggered a run on the bank following the shock announcement of a $1.8bn loss.
With around $209bn in assets, SVB is the second-largest bank failure in US history after the 2008 collapse of Washington Mutual. The crash could decimate the tech sector as many start-ups use SVB as their sole account and creditor.
Investors are only insured up to $250,000 and as well as tech firms, many Silicon Valley workers use the bank for their personal cash flow and mortgages.
NY-based entrepreneur Brad Hargreaves warned that the failure of SVB would have a ‘massive impact on the tech ecosystem.’
Ashley Tyrner, CEO of Boston wellness firm FarmboxRx, said she had at least $10m deposited with SVB and has been frantically calling her banker. She called it ‘the worst 18 hours of my life’
Santa Clara Police officers exit the Silicon Valley Bank headquarters in Santa Clara, California, Friday. The Federal Deposit Insurance Corporation (FDIC) seized SVB’s assets today after depositors – mostly tech workers and start-up firms – triggered a run on the bank following the shock announcement of a $1.8bn loss
People try to access the Park Avenue branch of the Silicon Valley Bank, in New York City, Friday
‘SVB was not just a dominant player in tech but were highly integrated in some nontraditional ways. A few things we’ll see in the coming days or weeks,’ he tweeted.
‘One, SVB was incredibly integrated into the lives of many founders. Not just their startup’s bank & lender, but also provided personal mortgages and other financial services. A whole mess for FDIC (or the eventual buyer) to unwind.
‘Two, any ‘uninsured’ balances at SVB – those above $250K – are in jeopardy. FDIC plans to pay them out ‘as it sells the assets of SVB’. Lots of startups exclusively banked with SVB as *this was a covenant of their debt*!’
Hargreaves said many CEOs were faced with a tough choice yesterday, either pull your cash and go into default on your debt or risk losing everything if the bank failed.
‘Many chose to hold tight as SVB’s outright failure seemed outlandish. Now they may not be able to make payroll next week,’ he said. ‘Unpaid wages pierce the corporate veil, so boards are *incredibly* sensitive to employing workers they may not be able to pay. Expect mass layoffs later today, Monday at latest.’
SVB’s stock price plunged 66 percent in pre-market before trading was suspended. Cops were called to a branch in Manhattan after dozens of desperate depositors showed up to try and pull their funds out.
The FDIC said Friday that customers would have full access to their insured deposits no later than Monday morning.
The federal agency said it will pay uninsured depositors an advance dividend within the next week. As the FDIC sells of the bank’s assets, future dividend payments may be made for the uninsured funds.
However, the FDIC said at the time of the bank’s closing the amount of deposits in excess of the insurance limits was undetermined.
‘This is going to be tough on a lot of founders and startups, a lesson to be learned,’ said Adrian Mendoza, founder and general partner of Mendoza Ventures in Boston.
He told The Boston Globe: ‘I am getting texts and e-mails from all over. We are getting bombarded.’
The panic sparked fears that the Silicon Valley lender could be the canary in the banking coal mine.
A Brinks security truck is parked outside the Silicon Valley Bank in Santa Clara as investors line up outside after the bank shut its doors. The Federal Deposit Insurance Corporation (FDIC) seized SVB’s assets today as depositors – mostly tech workers and start-up firms – began withdrawing their money following the shock announcement of a $1.8bn loss
The Federal Deposit Insurance Corporation seized SVB’s assets today as trading was halted after its shares tumbled 66 percent in premarket
Michael Burry, the investor featured in the 2015’s The Big Short, warned: ‘It is possible today we found our Enron.’
SVB’s problems followed the sudden shutdown of another bank, Silvergate Capital.
At Silvergate, the issue was a run on deposits that began last year, when its predominantly crypto-based clients withdrew funds amid the collapse of the FTX exchange.
SVB is the banking partner for half of US venture-backed tech and life sciences firms, and is a major creditor to the $10tn private capital industry.
‘SVB’s 40 years of business relationships supporting Silicon Valley evaporated in 14 hours,’ said a senior executive at a multibillion-dollar venture fund.
Before SVB’s vulnerability became public, US bank stocks had already taken a dive after retail bank KeyCorp warned it faced soaring pressure to pay savers.
After a 6.6 percent decline on Thursday, the S&P 500 banks index steadied from an early fall on Friday, briefly turning higher, while the KBW Regional Banking index was down 3.5 percent. Europe’s STOXX banking index fell almost 3.8 percent, marking it biggest one-day percentage slide since June 2022.
Christopher Whaler, Chairman of Whalen Global Advisors in New York, said: ‘I think the Fed badly miscalculated the impact of rising interest rates and so these are self-inflicted wounds and if we see more banks fail then the Fed is faced with a very tough situation which may force them to drop interest rates.’
‘There could be a bloodbath next week as banks are in trouble, the short sellers are out there and they are going to attack every single bank, especially the smaller ones.’
‘I think Silvergate started it. That one was the first pebble to go off the mountain and now we have a boulder and more are likely to follow.’
‘Investors are concerned on where they should be putting their money in and it is not good for the smaller banks when these questions are getting asked by customers. It has a ripple effect and other smaller banks may suffer.’
Ashley Tyrner, CEO of Boston wellness firm FarmboxRx, said she had at least $10m deposited with SVB and has been frantically calling her banker. She said it had been ‘the worst 18 hours of my life.’
‘It was pure and utter panic,’ she said of her mindset after learning the news.
Tyrner, who heads a company of 63 staff, told The New York Post ‘all panic broke loose’ on Thursday morning when senior executives called her saying they needed her to urgently approve a wire transfer. ‘When I went to log in to approve the wire, the system was completely crashed,’ Tyrner said. ‘It would not let anybody in.’
Tyrner said she had repeatedly attempted to call customer service and her personal banker at SVB. ‘He wouldn’t answer the phone,’ Tyrner told the Post. ‘He sent us a text that he’s very sorry. They’re trying to fix the issue to get us logged into the account.’
But when she tried contacting him later when the issue still wasn’t fixed he stopped answering. ‘He won’t get back to anyone in my company,’ she said. ‘Not even a text. We have no idea what’s going on.’