Silicon Valley Bank bankruptcy has global repercussions

It was called Silicon Valley Bank, but its collapse sends shock waves around the world.

From California winemakers to startups across the Atlantic Ocean, companies are scrambling to figure out how to manage their finances after their bank suddenly closed Friday. Collapse spells distress not just for businesses, but for all of their workers whose paychecks may be stranded in the chaos.

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.

The headquarters of Silicon Valley Bank is seen in Santa Clara, California on March 10, 2023.

Tayfun Coskun/Anadolu Agency via Getty Images

This includes clients like Circle, a big player in the cryptocurrency industry. He said he has around $3.3 billion of the approximately $40 billion in reserves for his USDC coin at SVB. This caused the value of USD Coin, which is trying to stay firmly at $1, to briefly dip below 87 cents on Saturday. It then climbed back above 97 cents, according to CoinDesk.

Across the Atlantic, startups woke up on Saturday to find that SVB’s UK operations will stop making payments or taking deposits. The Bank of England announced on Friday night that it will put Silicon Valley Bank UK into its insolvency proceedings, which will pay eligible depositors up to £170,000 ($204,544) for joint accounts “as soon as possible “.

“We know there are a large number of startups and investors in the ecosystem who have significant exposure to SVB UK and will be very concerned,” said Dom Hallas, chief executive of Coadec, which represents UK startups. on Twitter. He cited “concern and panic”.

The Bank of England said SVB UK’s assets would be sold to pay creditors.

It’s not just startups that are feeling the pain. The bank’s collapse has an effect on another important California industry: fine wines. It has been an influential lender to vineyards since the 1990s.

“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.”

In Seattle, Shelf Engine CEO Stefan Kalb found himself thrust into emergency meetings devoted to figuring out how to meet the payroll instead of focusing on his start-up’s business of helping grocers manage their food orders.

“It was a brutal day. We literally have every penny at Silicon Valley Bank,” Kalb said Friday, pegging the amount of the deposit that is now locked at millions of dollars.

He files a claim for the $250,000 limit, but that won’t be enough to pay Shelf Engine’s 40 employees for long. This could force him to decide whether to start furloughing employees until the mess is cleaned up.

“I just hope the bank is sold over the weekend,” Kalb said., a San Francisco-based employee performance management firm, was among Silicon Valley Bank depositors who rushed to withdraw their money before regulators seized the bank.

Co-founder David Murray attributes an email to one of Confirm’s venture capitalists urging the company to withdraw its funds “immediately”, citing signs of a run on the bank. Such actions accelerated the flight of cash, which led to the bank’s collapse.

“I think a lot of founders shared the logic that, you know, there’s no downside to withdrawing money to be safe,” Murray said. “And so we all did that, hence the bank rush.”

The US government needs to act faster to prevent further damage, said Martín Varsavsky, an Argentine entrepreneur who has investments in the tech industry and in Silicon Valley.

One of his companies, Overture Life, which employs about 50 people, had around $1.5 million in deposits in the financially troubled bank, but can rely on other assets elsewhere to cope with the mass. salary.

But other companies have high percentages of their cash in Silicon Valley Bank, and they need access to more than the amount protected by the FDIC.

“If the government allows people to take at least half of the money they have from Silicon Valley Bank next week, I think it will be fine,” Varsavsky said on Saturday. “But if they stick with $250,000, it will be an absolute disaster in which so many companies cannot meet the payroll.”

Andrew Alexander, a calculus teacher at a private high school in San Francisco that uses Silicon Valley Bank, wasn’t too worried. His next paycheck isn’t due for two weeks, and he’s confident many issues can be resolved by then.

But he worries for friends whose livelihoods are more closely tied to the tech industry and Silicon Valley.

“I have a lot of friends in the startup world who are kind of terrified,” Alexander said, “and I really feel for them. It’s pretty scary for them.”

Leave a Comment