Silicon Valley Bank failure with worldwide consequences

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

From wine producers in California to startups across the Atlantic, companies are struggling to figure out how to manage their finances after their bank suddenly closed Friday. The meltdown spells distress not only for companies, but also for all their workers, whose paychecks could be tied up in the chaos.

“Silicon Valley Bank failed largely because of its ties to the technology industry, because technology is getting hit by all the rising interest rates and changes in consumer preferences,” said Mark Zandi, chief economist for Moody’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 count 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.

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

Tayfun Coskun/Anadolu Agency via Getty Images

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 at SVB. That caused the value of the USD Coin, 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 that concern a few banks that I’m watching very closely,” U.S. Treasury Secretary Janet Yellen said Friday while testifying before the House Ways and Means Committee. “When banks experience financial losses, it is and should be 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 my home. Those 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” spread across multiple, large financial institutions.”

Late. Alex Padilla from California tweeted Saturday that “if regulators don’t act quickly, the Silicon Valley Bank collapse will have widespread consequences for small businesses, startups and nonprofits trying to make a profit — as well as for our broader economy.”

Across the Atlantic, startup companies woke up on Saturday to find that SVB’s UK business 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) in 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, 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 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.

“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 be fine. But she is concerned about the wider effects on smaller winegrowers 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 main lenders, will definitely 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 immersed in emergency meetings devoted to figuring out how to meet payroll instead of focusing on his 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, pinning the amount of deposits now pegged at millions of dollars.

He files a claim for the $250,000 limit, but that won’t be enough to keep paying Shelf Engine’s 40 employees for long. That could force him to make a decision about whether to start laying off employees until the mess is cleaned up.

“I just hope the bank is sold over the weekend,” Kalb said.

San Francisco-based employee performance management company was among the 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 funding “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 we all did, hence the bank run.”

The US government needs to act more quickly to stop further damage, said Martín Varsavsky, an Argentinian entrepreneur who has investments across the technology industry and Silicon Valley.

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

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 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 payroll.”

Andrew Alexander, a calculus teacher at a private San Francisco high school that uses Silicon Valley Bank, wasn’t too worried. His next paycheck isn’t scheduled for another two weeks, and he’s confident many of the issues can be resolved before 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 like terrified,” Alexander said, “and I really feel for them. It’s pretty scary for them.”

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