Silicon Valley Bank failure with worldwide consequences
It was called Silicon Valley Bank, but its collapse sent shockwaves around the world.
From wineries in California to start-ups across the Atlantic, businesses are trying to figure out how to manage their finances after their bank was suddenly closed Friday. The meltdown means distress not only for companies, but also for all their workers whose paychecks could be tied up in the chaos.
“Silicon Valley Bank failed in large part because of its links to the tech industry, because tech gets hammered by all the rising interest rates and changes in consumer preferences,” said Mark Zandi, chief economist for Moody̵[ads1]7;s Analytics.
California Gov. Gavin Newsom said Saturday that he is talking to the White House to help “stabilize the situation as quickly as possible, to protect jobs, people’s livelihoods and the entire 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 from the Federal Deposit Insurance Corp. Regulators are trying to find a buyer for the bank in the hope that customers with more than that can be made whole.
That includes clients like Circle, a major player in the cryptocurrency industry. It said it has about $3.3 billion of the roughly $40 billion in reserves for its USDC coin with SVB. That caused the USD Coin’s value, which is trying to hold on to $1, to briefly dip below 87 cents on Saturday. It later rose back above 97 cents, according to CoinDesk.
“There are recent developments concerning a few banks that I’m watching very closely,” US Treasury Secretary Janet Yellen said Friday, testifying before the House Ways and Means Committee. “When banks experience financial losses, that is and should be a cause for concern.”
The bank serves several major companies, including Roku, Pinterest, Shopify and Etsy.
An Etsy spokesperson told CBS News in a statement Saturday that they had “recently experienced a delay in issuing payments to some sellers” due to the bank collapse.
Small business owner and Etsy seller Amber Fields was among those swept up in the chaos.
“I’m a mother of three,” Fields said. “I run a small business. I do this from home. These funds feed my family and pay my bills.”
Roku told CBS News in a statement that it did not expect the collapse to affect its operations because it has access to “$1.4 billion in cash and cash equivalents” across several large financial institutions.
Sen. Alex Padilla from California tweeted Saturday that “if regulators don’t act quickly, the Silicon Valley Bank collapse will have far-reaching consequences for small businesses, startups and nonprofits trying to make money — as well as for our broader economy.”
Across the Atlantic, start-ups woke up on Saturday to find that SVB’s UK operations will stop paying or accepting deposits. The Bank of England said late Friday that it will put Silicon Valley Bank UK into insolvency proceedings, which will pay out eligible depositors up to 170,000 British pounds ($204,544) for joint accounts “as quickly 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,” Dom Hallas, CEO of Coadec, which represents UK startups, said 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 feel the pain. The bank’s collapse has an effect on another important industry in California: fine wines. It has been an influential lender to vineyards since the 1990s.
“This is a huge disappointment,” said winemaker Jasmine Hirsch, general manager of Hirsch Vineyards in California’s Sonoma County.
Hirsch said she expects her business to do well. But she is concerned about the wider effects for smaller vintners looking for lines of credit to plant new vines.
“They really understand the wine business,” Hirsch said. “The disappearance of this bank, as one of the most important lenders, will certainly have an effect on the wine industry, especially in an environment where interest rates have gone up.”
In Seattle, Shelf Engine CEO Stefan Kalb found himself immersed in crisis meetings devoted to figuring out how to meet payroll instead of focusing on the startup’s business of helping grocers manage their food orders.
“It’s been a brutal day. We literally have every penny in Silicon Valley Bank,” Kalb said Friday, pegging the deposit amount now pegged at millions of dollars.
He files a claim for the $250,000 limit, but it won’t be enough to continue paying Shelf Engine’s 40 employees for long. That could force him to make a decision about whether to start furloughing employees until the mess is cleaned up.
“I just hope the bank gets sold over the weekend,” Kalb said.
San Francisco-based company Confirm.com was among Silicon Valley Bank depositors who rushed to withdraw their money before regulators seized the bank.
Co-founder David Murray credits an email from one of Confirm’s venture capital investors, who urged the company to withdraw its funds “immediately,” citing signs of a run on the bank. Such actions accelerated the flight of money, leading to the bank’s collapse.
“I think a lot of founders shared the logic that there’s no downside to pulling the money up to be safe,” Murray said. “And so we all did, hence the bank run.”
The U.S. government must act more quickly to stem further damage, said Martín Varsavsky, an Argentine entrepreneur whose investments span across the technology industry and Silicon Valley.
One of his companies, Overture Life, which employs about 50 people, had about $1.5 million in deposits with the financially troubled bank but can rely on other holdings elsewhere to meet salary payments.
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 lets people take at least half of the money they have in Silicon Valley Bank next week, I think everything will be fine,” Varsavsky said Saturday. “But if they stick to $250,000, it will be an absolute disaster where so many companies will not be able to meet wages.”
Andrew Alexander, a calculus teacher at a private high school in San Francisco that uses Silicon Valley Bank, wasn’t overly concerned. His next paycheck isn’t scheduled for another two weeks, and he’s confident many of the issues can be resolved by then.
But he worries about friends whose livelihoods are more deeply intertwined with the tech industry and Silicon Valley.
“I have a lot of friends in the startup world who are just as terrified,” Alexander said, “and I really feel for them. It’s pretty scary for them.”