‘Nip the bank in the bud’: Calls to rescue collapsed Silicon Valley Bank galore

SVB failure means "65,000 startups could miss payroll," creating "huge problems for the startup and tech economy," warns an expert.
Baba Tamim
A customer stands outside of a shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.
A customer stands outside of a shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.

Justin Sullivan/Getty Images 

Tech celebrities and pundits have urged the U.S. federal government to pressure other banks to take over the defunct Silicon Valley Bank (SVB) in order to protect uninsured deposits.

The biggest worry is that if savings exceeding $250,000 are not protected, customers may lose trust in other mid-sized banks, hence a catastrophic collapse, according to multiple media reports. 

"Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe," David Sacks, VC, Craft Ventures, tweeted on Friday, questioning the authorities.

"Place SVB with a Top 4 bank. Do this before Monday open, or there will be contagion, and the crisis will spread," he suggested. 

Up to $250,000 per depositor is covered by the Federal Deposit Insurance Corporation (FDIC), which may be ready to start compensating those depositors as soon as Monday. 

However, the vast majority of SVB's clients were companies with larger bank deposits. 

According to regulatory records, the deposit base of the bank was over 95% uninsured as of December.

What SVB failure means for '65,000 startups'?

Startups, which make up a large portion of these depositors, are worried that they won't be able to pay their employees this month, which could lead to a large number of business bankruptcies and job losses in the IT sector.

Investors worry that these failures could erode trust in the banking industry, especially among mid-sized institutions with deposits of under $250 billion.

"$250k is too low. It's insane that a small company with, say, 2.5m in payables and payroll at the end of the month should be 'prudent' and split their cash across 10 banks in case of a run," Mark Cuban, popular US business tycoon, and Shark Tank star stated in a tweet on Saturday.

"The fees and admin would be crazy. But great for banks."

The importance of Silicon Valley Bank to the economy and the ripple effects of SVB's failure is the beginning of a domino effect throughout tech and startups, according to banking and financial expert Andrew Lokenauth. 

"About half of all venture capital-funded startups in the US are customers of SVB. That's 65,000 startups," Lokenauth said in a thread of tweets explaining the disaster in the making.

"This means that 65,000 startups could miss payroll. This can create huge problems for the startup and tech economy."

Meanwhile, Sacks warns, "If the Fed doesn't nip the bank run in the bud, regional banks will be decimated, and all that will be left is the biggest banks. 

"You know, the "too big to fail" ones. This will not help the little guy," he said.

SVB collapse is the second-largest banking failure in American history. It had $210 billion in assets and was the 15th-largest bank in the country by deposits.

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