June 16, 2024

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The failure of the Silicon Valley bank has global ramifications

The failure of the Silicon Valley bank has global ramifications

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

From California winemakers to startups across the Atlantic, companies are scrambling to figure out how to manage their finances after Their bank suddenly closed Friday. Collapse would mean misfortune not only for companies but also for all their workers whose pay might be tied up in the chaos.

“Silicon Valley bank failed largely because of its connections to the tech industry, because tech has been nailed through all the hikes in interest rates, changes in consumer preferences,” said Mark Zandi, chief economist at Moody’s Analytics.

California Gov. Gavin Newsom said Saturday he’s talking with the White House to help “stabilize the situation as quickly as possible, to protect jobs and people’s livelihoods and the entire innovation system that has been such a tentpole for our economy.”

US customers with less than $250,000 in the bank can count on insurance provided by the Federal Deposit Insurance Corporation. And the regulators are trying to find a buyer for the bank in the hope that customers who have more will become full.

The Silicon Valley bank is headquartered in Santa Clara, California, on March 10, 2023.

Tayfun Coskun/Anadolu Agency via Getty Images


This includes clients like Circle, which is a big player in the cryptocurrency industry. It said it had about $3.3 billion of about $40 billion in reserves of USDC tokens in SVB. That caused the value of the US dollar, which has been trying to hold steady at $1, to drop briefly below 87 cents on Saturday. It later rose to more than 97 cents, according to CoinDesk.

“There are recent developments that concern a few banks that I watch very carefully,” US Treasury Secretary Janet Yellen said on Friday while testifying before the House Ways and Means Committee. “When banks experience financial losses, it is and should be a concern.”

The bank serves many major companies, including Roku, Pinterest, Shopify, and Etsy.

An Etsy spokesperson told CBS News in a statement Saturday that it “recently experienced delays in issuing payments to some sellers” due to the bank’s collapse.

Small business owner and Etsy seller Amber Fields was among those swept up in chaos.

“I’m a mother of three,” Fields said. “I run a small business. I do it from my home. This money feeds my family and pays my bills.”

Roku told CBS News in a statement that it does not expect the collapse to affect its operations because it has access to “$1.4 billion in cash and cash equivalents” distributed among several large financial institutions.

Senator Alex Padilla of California chirp Saturday that “if regulators don’t act quickly, the Silicon Valley bank collapse will have widespread repercussions for small businesses, startups, and nonprofits trying to earn a paycheck — as well as for our broader economy.”

Across the Atlantic, startups woke up Saturday to find that their UK SVB business would stop making payments or accepting deposits. The Bank of England said late Friday that it would put the UK’s Silicon Valley bank into insolvency proceedings, which will pay eligible depositors up to £170,000 ($204,544) for joint accounts “as quickly as possible.”

“We know there are a large number of startups and ecosystem investors who have significant exposure to SVB UK and would be very concerned,” Dom Halas, CEO of Coadec, which represents UK startups, said on Twitter. He expressed “concern and panic.”

The Bank of England has said that SVB UK assets will be sold to pay creditors.

Startups don’t just feel the pain. The bank’s collapse had an impact on another important industry in California: fine wine. It has been an influential lender to its vineyards 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 be just fine. But she worries about the broader effects on small vintners 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 most important lenders, will certainly have an impact on the wine industry, especially in an environment where interest rates have gone up.”

In Seattle, Shelf Engine CEO Stephan Caleb found himself sucked into emergency meetings devoted to figuring out how to meet payroll rather than focusing on his startup’s business of helping groceries manage their food orders.

“It was a rough day. We literally have every penny in a Silicon Valley bank,” Caleb said Friday, pegging the now capped deposit amount to millions of dollars.

He’s making a $250,000 limit claim, but that won’t be enough to keep paying Shelf Engine’s 40 employees for long. That may force him to decide whether to start furloughing employees until the mess is cleaned up.

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

San Francisco-based employee performance management firm Confirm.com was among the Silicon Valley bank depositors scrambling to withdraw their money before the bank was taken over by regulators.

Co-founder David Murray attributes an email from one of Confirmation’s venture capital investors, which urged the company to withdraw its money “immediately,” citing signs of a bank run. These measures accelerated the flight of liquidity, which led to the collapse of the bank.

“I think a lot of the founders were sharing the logic that, you know, there’s no downside to raising money to be safe,” Murray said. “And so we all did it, hence the bank flow.”

Martin Varsavsky, an Argentine businessman with investments in the tech industry and Silicon Valley, said the US government needs to move more quickly to stop further damage.

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

But other companies have high percentages of Silicon Valley bank cash, and they need access to more than the amount the FDIC is protecting.

“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,” Varsawski said Saturday. “But if they commit $250,000, it will be an absolute disaster as many companies won’t be able to meet the payroll.”

Andrew Alexander, a calculus teacher at a private high school in San Francisco that uses a Silicon Valley bank, wasn’t too concerned. His next salary has not been decided for another two weeks, and he is confident that many problems can be resolved by 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 absolutely terrified,” Alexander said, “and I really feel for them. It’s very scary for them.”

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