- First Republic Bank customers lined up to withdraw their money on Saturday
- It comes a day after Silicon Valley Bank collapsed on Friday
- Both banks are associated with California’s wine and technology industries
Dozens of customers lined up outside a First Republic Bank in northern California on Saturday, eager to withdraw their funds following the collapse of Silicon Valley Bank.
There had been fears after SVB’s demise for the future of the First Republic when analysts pointed to similarities between the estimated value of their assets and the actual value.
Brentwood is located in the Golden State wine community just south of Napa Valley, with area wineries including Bloomfield, Tamayo and Hannah Nicole gaining international attention in recent years.
News of the Silicon Valley Bank collapse sent shockwaves through the wine industry. It was the primary financial institution for California wineries for nearly three decades.
California’s Department of Financial Protection and Innovation shut down the bank on Friday after depositors, concerned about the financial health of the lender, rushed to withdraw their deposits. The frantic two-day run on the bank blinded observers and stunned markets, wiping out more than $100 billion in market value for US banks.
On Friday evening, thousands of wineries found they were completely locked into their accounts with no clear timeline as to when they could access their funds.
The First Republic issued a statement on March 10 aimed at calming investors, stressing its “continuing security and stability and its strong capital and liquidity positions.”
The bank, founded in San Francisco in 1985, has 80 branches in 11 states across the country, mostly on the west and east coasts.
The main difference between the two banks is that Silicon Valley Bank’s debt consisted of securities, while First Republic’s debt consisted of loans.
Similarly, First Republic and Silicon Valley Bank rely heavily on customer deposits: in First Republic, high net worth individuals, and in Silicon Valley Bank, tech startups and venture capitalists.
With interest rates rising, First Republic customers have plenty of other places to park their money and may be looking to withdraw.
California Governor Gavin Newsom said on Saturday he was speaking with the White House to help “stabilize the situation as quickly as possible, to protect jobs, people’s livelihoods and the whole community. ‘innovation ecosystem that has served as a tent pole for our economy’.
US customers with less than $250,000 in the bank can rely on insurance provided by the Federal Deposit Insurance Corp. Regulators are trying to find a buyer for the bank in hopes that customers with more than that can be fixed.
Kendra Kawala, co-founder of Maker, a Bay Area canned wine company, called the news “shocking,” noting how Silicon Valley Bank was “the industry’s gold standard. some wine”.
When she started Maker four years ago, choosing the right banking partner was almost a no-brainer.
“The technology and the business are well capitalized, but this could be a very serious reckoning for independent wineries,” Kawala said.
“We’ve never experienced anything like this. Nobody knows how it’s going to turn out.
Wineries accounted for 2% of the bank’s total lending activity, but the ramifications are far-reaching, including the inability to pay employees, bills or credit card payments.
Silicon Valley Bank, the 16th largest bank in the nation, has provided more than $4 billion in loans to wineries and vineyards since 1994.
“It’s a huge disappointment,” said winemaker Jasmine Hirsch, general manager of Hirsch Vineyards in Sonoma County, California.
Hirsch said she expects her business to go well. But she worries about the wider effects for small winemakers seeking lines of credit to plant new vines.
“They really understand the wine business,” Hirsch said. “The demise of this bank, as one of the largest lenders, is absolutely going to have an effect on the wine industry, especially in an environment where interest rates have risen.”
The founder of Silicon Valley Bank’s wine division, Rob McMillan, who would write the annual outlook, has so far declined to comment on the situation, but he had made the bank’s reputation one of the few institutions to really understand the wine industry.
The data collected by the bank was a source of data that wineries would use to make decisions about future sales, marketing and farming.
The bank had a unique perspective on the industry due to the number of customers it helped finance.
The loss of the annual report in particular means that wineries will not have access to the comprehensive analysis that many used to make their decisions.
A new bank was set up on Friday by the Federal Deposit Insurance Corp., National Bank of Santa Clara, which will hold the remaining deposits and assets of Silicon Valley Bank.
But only accounts with $250,000 or less are FDIC insured.
Silicon Valley Bank workers have been offered 45 days of employment at one-and-a-half times their pay by the Federal Deposit Insurance Corp, the US regulator that took control of the collapsed lender, according to an email to staff seen by Reuters.
Workers will be enrolled and informed about benefits over the weekend by the FDIC, and health care details will be provided by former parent company SVB Financial Group, the FDIC wrote in an email titled ” Employee Retention” Friday night. SVB employed 8,528 people at the end of last year.
Staff have been asked to continue working remotely, with the exception of essential workers and branch employees.