By Nikki Slusher
The tech and finance worlds came crashing together this week after the Federal Deposit Insurance Corporation (FDIC) announced it would be stepping in and taking over the latest bank failure at Silicon Valley Bank (SVB). Folks from both the tech and financial industries were quick to voice that the federal government should push another banking institution to take over the failed SVB so that uninsured deposits would be protected. According to CNBC’s reporting, concerns are high regarding the protection of deposits over $250,000 to prevent “loss of faith in other mid-sized banks.”
SVB’s troubled financial situation wasn’t publicly disclosed until a surprising statement on Wednesday. The bank, which opened its doors 40 years ago, announced it needed to come up with $2.25 billion to balance, and it had sold all its bonds that it could sell immediately at a $1.8 billion loss. By the end of Thursday over $42 billion had been withdrawn — making SVB the second largest banking failure in our country’s history. After failing on Friday, the FDIC took charge and will cover up to $250,000 per depositor. Payments may begin as early as Monday morning.
Unfortunately there’s one problem with that. Majority of SVB’s customers were businesses with over $250,000 in the bank. CNBC’s report revealed that over 95% of SVB’s deposits remained uninsured as of December. Servicing technology start-ups, SVB’s depositors are worried that now they will be unable to make payroll, and potentially trickle into massive layoffs and failures in the tech sector.
David Sacks, a former tech CEO and venture capitalist, tweeted his support for the government to get another bank to purchase SVB’s assets. “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.” VC Mark Suster supported Sacks, tweeting, “I suspect this is what they’re working on. I expect statements by Sunday. We’ll see. I sure hope so or Monday will be brutal.” Eric Vishria — Benchmark partner — added to the argument, “If SVB depositors aren’t made whole, then corporate boards will have to insist their companies use two or more of the BIG four banks exclusively. Which will crush smaller banks. AND make the too big to fail problem way worse.”
Of course politicians were quick to oppose any government bailout. Rep. Matt Gaetz (GQP-FL) tweeted, “If there is an effort to use taxpayer money to bail out Silicon Valley Bank, the American people can count on the fact that I will be there leading the fight against it.” But Anthony Scaramucci, a financier and former Trump communications director, countered the argument, “It isn’t a political decision to bailout SVB. Don’t make the Lehman mistake. It isn’t about rich or poor of who benefits, it’s about stopping contagion and protecting the system. Make depositors whole or expect lots of tragic unintended consequences.”
The Mooch is right on this one. While Gaetz for once isn’t sounding completely insane, his view fails to analyze the trickle down effects or consequences this could have. I truly hope those in charge can navigate through this situation with a positive outcome.