From winemakers in California to startups across the Atlantic Ocean, companies are scrambling to figure out how to manage their finances after the bank suddenly shut down. The meltdown means hardship not only for businesses but also for all workers whose wages could be tied up in the chaos.
California Governor Gavin Newsom said on Saturday that he was talking to the White House to help “stabilize the situation quickly, to protect jobs, people’s livelihoods, and the entire innovation ecosystem that has been the tent pole for our economy.”
US customers with less than $250,000 in the bank can count on insurance provided by the Federal Deposit Insurance Corp. Regulators are trying to find a buyer for the bank in the hope of customers with more than that can be made whole.
That includes customers like Circle, a big player in the cryptocurrency industry. It says it has been about $3.3 billion of approximately $40 billion in reserves for USDC coins at SVB. That caused the price of the USD Coin, which is trying to stay steady at $1, to drop briefly below 87 cents on Friday. It then rose again above 97 cents, according to CoinDesk.
In the Atlantic, startups woke up on Saturday to find SVB’s UK business would stop making payments or accepting deposits. The Bank of England said late Friday that it will put Silicon Valley Bank UK in its insolvency procedure, which will pay out eligible depositors up to 170,000 British pounds ($204,544) to a joint account “so quickly.”
“We know that there are many startups and investors in the ecosystem that have significant exposure to SVB UK and will be very concerned,” Dom Hallas, executive director of Coadec, which represents UK startups, on Twitter. He called it “concern and panic.”
The Bank of England said SVB UK’s assets will be sold to pay creditors.
Startups aren’t the only ones feeling the pain. The bank’s collapse had an impact on another important California industry: fine wine. 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 he expects business to do well. But he worries about the wider effect on small vintners seeking credit to plant new grapes.
“He really knows the wine business,” Hirsch said. “The loss of this bank, as one of the most important lenders, will really have an impact on the wine industry, especially in an environment where interest rates have risen.”
In Seattle, Shelf Engine CEO Stefan Kalb found himself immersed in impromptu meetings devoted to figuring out how to earn a salary instead of focusing on his startup’s business of helping grocers manage food orders.
“It’s a brutal day. We literally have every penny in Silicon Valley Bank,” Kalb said on Friday, citing the number of deposits now in the millions of dollars.
They filed a claim for the $250,000 limit, but it wasn’t enough to keep paying Shelf Engine’s 40 employees. This could force them to decide whether to start furloughing employees until the mess is cleaned up.
“I’m just hoping the bank will be sold by the end of the week,” Kalb said.
Tara Fung, co-founder and CEO of tech startup Co: Create that helped launch a digital loyalty and rewards program, said her company used multiple banks in addition to Silicon Valley Bank to shift vendor salaries and payments to other banks on Friday.
Fung said that the company chose the bank as a partner because it is “the gold standard for technology companies and banking partnerships,” and that he was upset that people were too happy about the failure and unfairly cast doubt on cryptocurrency ventures.
San Francisco-based employee performance management company Confirm.com was among Silicon Valley Bank’s depositors who rushed to withdraw their money before regulators seized the bank.
Co-founder David Murray credits an email from one of the Confirmation of venture capital investors, which urged the company to withdraw funds “immediately,” said the signs of a run on the bank. These actions precipitated a flight of cash, which led to the collapse of the bank.
“I think many founders share the logic that, you know, there is no downside to pulling up money for safety,” said Murray. “And we all did, so the bank opened.”
The US government must act more quickly to prevent further damage, said MartÃn Varsavsky, an Argentine businessman with investments in the technology industry and Silicon Valley.
One company, Overture Life, which employs about 50 people, has about $1.5 million in deposits at a financially troubled bank but can rely on other holdings elsewhere to find a paycheck.
But other companies have a high percentage of 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 that is in Silicon Valley Bank next week, I think everything will be fine,” Varsavsky said on Friday. “But if they keep it at $250,000, it will be an unmitigated disaster so many companies won’t be able to get their salaries.”
Andrew Alexander, a calculus teacher at a San Francisco private high school that uses Silicon Valley Bank, isn’t too worried. The next paycheck isn’t scheduled for another two weeks, and he believes there are many issues that can be resolved.
But he worries about his friends whose livelihoods are more deeply tied to the tech industry and Silicon Valley.
“I have a lot of friends in the startup world who are kind of scared,” Alexander said, “and I really feel for them. It’s pretty scary for them.
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AP writers Matt O’Brien, Michael Liedtke and Alex Veiga contributed.