The failure of a Silicon Valley bank had global consequences

It used to be called the Silicon Valley bank, but its collapse is sending shockwaves around the world.

From winemakers in California to startups across the Atlantic, companies are scrambling to figure out how to manage their finances. Their bank suddenly closed Friday. A meltdown means misery not just for businesses, but for all workers whose paychecks are in limbo.

“Silicon Valley Bank failed because of its interactions with the technology industry, because technology is driven by all the changes in interest rates and consumer preferences,” said Mark Jandy, chief economist at Moody’s Analytics.

California Gov. Gavin Newsom said Saturday he would speak with the White House “to stabilize the situation as quickly as possible and protect jobs, people’s livelihoods and the entire innovation ecosystem that has served as the tentpole of our economy.”

US customers with less than $250,000 in the bank can count on insurance from the Federal Deposit Insurance Corporation. Regulators are trying to find a buyer for the bank, hoping more customers can perfect it.

March 10, 2023 Silicon Valley Bank is headquartered in Santa Clara, California.

Tayfun Coskun/Anadolu Agency via Getty Images

This includes clients such as Circle, a major company in the cryptocurrency industry. It said it has about $3.3 billion of the roughly $40 billion in reserves for USDC currency at the SVB. The USD, which is trying to hold on to $1, fell below 87 cents on Saturday. It later rose to more than 97 cents, according to CoinDesk.

U.S. Treasury Secretary Janet Yellen said Friday during testimony before the House Ways and Means Committee that there are recent developments about a few banks that I watch very carefully. “When banks are experiencing financial losses, that should be a matter of concern.”

The bank serves several large companies, including Roku, Pinterest, Shopify, and Etsy.

An Etsy spokesperson said in a statement to CBS News on Saturday that the bank collapse “has caused delays in payments to some sellers.”

Small business owner and Etsy seller Amber Fields is one of those caught up in the confusion.

“I’m a mother of three,” Fields said. “I run a small business. I do this from my home. The funds feed my family and pay my bills.”

Roku told CBS News that it doesn’t expect the downturn to affect its operations because it has access to “$1.4 billion in cash and cash equivalents” distributed across several large financial institutions.

Sen. Alex Padilla of California Tweeted Saturday, “If regulators don’t act quickly, a Silicon Valley bank collapse will have far-reaching consequences for small businesses, startups and nonprofits struggling to pay — as well as for our broader economy.”

Across the Atlantic, start-ups woke up on Saturday to find that SVB’s UK business had stopped making payments or accepting deposits. The UK said late on Friday it would place the Silicon Valley bank into insolvency proceedings, which would pay out up to 170,000 British pounds ($204,544) to eligible depositors in joint accounts “as quickly as possible”.

“We know that a large number of startups and investors in the ecosystem have significant exposure to SVB UK and will be very interested,” Dom Hallas, managing director of CODEC, which represents British startups, said on Twitter. He cited “anxiety and panic.”

The Bank of England said SVB UK’s assets would be sold to pay creditors.

Startups aren’t the only ones feeling the pain. The bank’s collapse affects another important California industry: fine wines. It has been an influential lender to vineyards since the 1990s.

“It’s a big disappointment,” said winemaker Jasmine Hirsch, general manager of Hirsch Vineyards in Sonoma County, California.

Hirsch said he expects his business to do well. But she worries about the broader consequences for small vintners seeking lines of credit to plant new vines.

“They really understand the wine business,” Hirsch said. “The demise of this bank, as one of the most important lenders, is going to be absolutely devastating to the wine industry, especially in an environment where interest rates have risen.”

In Seattle, Shelf Engine CEO Stephen Kalb found himself bogged down 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 have every penny in a Silicon Valley bank,” Culp said Friday, referring to deposits that are now tied up in the 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 in the long run. He may be forced to make a decision about whether to start laying off employees until the mess is cleared up.

“I believe the bank will be sold by the end of the week,” Culp said., a San Francisco-based workforce performance management company, is one of the Silicon Valley Bank depositors

Co-founder David Murray credits an email from one of Confirm’s venture capital investors that showed signs of a bank run and urged the company to withdraw funding “immediately.” Such actions accelerated the flow of money, which led to the bank’s collapse.

“I think a lot of founders shared the logic that, you know, there’s nothing wrong with taking money to be safe,” Murray said. “So we all did it, so the bank runs.”

Martin Varsavsky, an Argentinian businessman with investments across the tech sector and Silicon Valley, said the US government must act quickly to prevent further damage.

One of his companies, Overture Life, employed about 50 people and had about $1.5 million in deposits with the financially troubled bank.

But other companies keep a larger percentage of their cash in Silicon Valley banks, and they need access to more than the amount protected by the FDIC.

“I think if the government allows people to take out at least half of the money they have in Silicon Valley banks next week, everything will be fine,” Varsavsky said Saturday. “But if they stick with $250,000, it’s going to be an absolute disaster where many companies can’t meet the payroll.”

Andrew Alexander, a calculus teacher at a private San Francisco high school that uses a Silicon Valley bank, isn’t too worried. His next paycheck isn’t scheduled for another two weeks, and he hopes many issues will be resolved by then.

But he worries for friends who are more deeply intertwined with the tech industry and Silicon Valley.

“I have a lot of friends in the startup world who are scared,” Alexander said, “and I really feel for them. It’s really scary for them.”

See also  Yellowknife, Northwest Territories: Thousands scramble to evacuate Canadian territory's capital as more than 200 'unprecedented' wildfires blanket the area

Leave a Reply

Your email address will not be published. Required fields are marked *