Insolvency of the Silicon Valley Bank with worldwide repercussions

It was called Silicon Valley Bank, but its collapse sent shockwaves around the world.

From winemakers in California to startups across the Atlantic Ocean, companies are struggling to figure out how to manage their finances afterwards Your bank was suddenly closed Friday. The meltdown spells hardship not just for companies, but for all of their workers, whose paychecks could get stuck in the chaos.

California Gov. Gavin Newsom said Saturday he was speaking to the White House to “stabilize the situation as quickly as possible, 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 count on insurance from the Federal Deposit Insurance Corp. Regulators are trying to find a buyer for the bank, hoping customers can be recovered with more than that.

US regulators have shut down Silicon Valley Bank amid a sudden collapse
Silicon Valley Bank headquarters is located on March 10, 2023 in Santa Clara, California.

Agency Tayfun Coskun/Anadolu via Getty Images

This includes clients like Circle, a big player in the cryptocurrency industry. It said it has about $3.3 billion of the roughly $40 billion in reserves for its USDC coin at SVB. This caused the value of the USD coin, which is attempting to remain firm at $1, to briefly fall below 87 cents on Saturday. It later rose back above 97 cents, according to CoinDesk.

Across the Atlantic, startup companies woke up on Saturday to find that SVB’s UK business will no longer make payments or accept deposits. The Bank of England said late Friday it would include Silicon Valley Bank UK in its bankruptcy proceedings, which would 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,” Dom Hallas, executive director 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 feeling the pain. The bank’s collapse impacts another important California industry: fine wines. It has been an influential vineyard lender since the 1990s.

“This is a huge disappointment,” said winemaker Jasmine Hirsch, general manager of Hirsch Vineyards in Sonoma County, California.

Hirsch said she expects her business to do well. But she’s concerned about the broader implications for smaller winemakers looking for lines of credit to plant new vines.

“They really understand the wine business,” Hirsch said. “The disappearance of this bank as a key lender will absolutely impact the wine industry, especially in an environment where interest rates have risen.”

In Seattle, Shelf Engine CEO Stefan Kalb was bogged down in emergency meetings figuring out how to meet payroll, rather than focusing on his start-up’s business of helping grocers manage theirs to help order groceries.

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

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

“I just hope that the bank will be sold at the weekend,” said Kalb.

San Francisco-based employee performance management company 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 urging the company to withdraw its funds “immediately,” citing signs of a run on the bank. Such actions accelerated the cash flight that led to the collapse of the bank.

“I think a lot of founders shared the logic that there’s no downside to raising the money for security reasons,” Murray said. “And we all did, hence the bank run.”

The US government must act faster to contain further damage, said Martín Varsavsky, an Argentine entrepreneur with investments in the tech industry and Silicon Valley.

One of his companies, Overture Life, which employs about 50 people, had about $1.5 million in deposits with the troubled bank but can rely on other holdings elsewhere to support payroll.

But other companies have a high percentage of their cash with 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 their money in Silicon Valley Bank next week, everything will be fine,” Varsavsky said Saturday. “But if they stay at $250,000, it’s going to be an absolute disaster with so many companies failing to meet their payroll.”

Andrew Alexander, a math teacher at a private San Francisco high school that uses Silicon Valley Bank, wasn’t overly concerned. His next paycheck isn’t due for another two weeks, and he’s confident that many of the issues can be resolved by then.

But he worries for 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 scared,” Alexander said, “and I really feel for them. It’s pretty scary for them.”

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