Big names in Silicon Valley and the financial sector are publicly calling for the federal government to push other banks to assume the assets and liabilities of Silicon Valley Bank after the financial institution failed on Friday.
The Federal Deposit Insurance Corporation (FDIC) will cover up to $250,000 per depositor and may begin paying that amount as early as Monday.
But most of SVB’s business customers have more than the deposit in the bank. As of December, more than 95% of bank deposits were uninsured, according to regulatory filings. Many of these savers are startups, and many are worried they won’t be able to pay their salaries this month, which could lead to a wave of failures and layoffs in the tech industry.
Investors worry that the failure could undermine confidence in the banking sector, particularly mid-sized banks with deposits of less than $250 billion. These banks are not considered “too big to fail” and do not have to undergo regular stress tests or other safety valve measures implemented after the 2008 financial crisis.
Venture capitalist and former tech CEO David Sacks called on the federal government to encourage other banks to buy SVB’s assets, wrote on Twitter“Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with the Top 4 banks. Do this before Monday opens or there will be contagion and the crisis will spread.”
VC Mark Suster agreed, 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.”
Investor Bill Ackman made a similar argument in a a long tweetwrote, “The government has about 48 hours to fix this irreversible mistake. By allowing @SVB_Financial failed without protecting all depositors, the world has woken up to what uninsured deposits – illiquid unsecured claims in failed banks. absence @jpmorgan @citi or @BankofAmerica acquire SVB before opening there, the prospect I believe to be impossible, or the gov’t guarantees all SVB’s deposits, the sound of a blind sigh you will hear will withdraw all uninsured deposits from all but ‘systemically important. bank” (SIB).
Benchmark partner Eric Vishria write“If the SVB depositors are not made whole, then the Boards of the company must emphasize the companies that use two or more of the BIG four special banks. Which will crush the small banks and make them too big to fail the problem way worse.
Since its establishment nearly 40 years ago, SVB has been a financial center in the technology industry, especially for startups and VCs investing. The company is known for extending banking services to early-stage startups that would otherwise struggle to get banking services elsewhere before generating stable cash flow. But the company itself is facing cash flow problems this year as startup funding dries up and its own assets are locked up in long-term bonds.
The company surprised investors on Wednesday with news that it had to raise $2.25 billion to shore up its balance sheet, and had sold all bonds available for sale at a loss of $1.8 billion. Reassurances from bank executives were not enough to stop the run, and depositors withdrew more than $ 42 billion at the end of the day, setting the second largest bank failure in US history.
Many in the tech community blame VCs for spurring the run, as many tell portfolio companies to put their money in safer places after SVB’s announcement.
“This is a hysteria-induced bank run caused by VCs,” Ryan Falvey, fintech investor at Restive Ventures, told CNBC on Friday. “This will go down as one of the leading cases of the industry cutting its nose to avoid being seen.”
Observers cite the irony that some VCs with famously libertarian free-market attitudes are now calling for bailouts. For example, reactions to Sacks’ tweet included statements like “I’m sorry, sir. Suddenly the government is the answer?!?“and”We capitalists want socialism!“
Some politicians opposed any bailout, with Rep. Matt Gaetz, R-Fla., tweeting“If there is an attempt 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 financier and former Trump communications director Anthony Scaramucci argue“It’s not a political decision to bailout SVB. Don’t make Lehman’s mistake. It’s not about the rich or the poor who benefit, it’s about stopping the contagion and protecting the system. Make depositors whole or expect a lot of tragic. unintended consequences.”
— Hugh Son and Ari Levy contributed to this story.