The rapid collapse of Silicon Valley Bank culminated Friday with news that the California Department of Financial Protection shut down the 40-year-old firm and turned it over to the Federal Deposit Insurance Corporation.
The downfall of SVB is being called the largest bank failure since the Great Recession. It has huge repercussions for tech startups and investors in Seattle and beyond that use SVB to store cash and raise venture debt.
Seattle-area founders told GeekWire they’ve used SVB since starting their companies. “They’ve been an instrumental partner with early stage companies for decades,” said Mike McSherry, CEO at Seattle startup Xealth.
Fears of potential illiquid assets spread across the startup world Thursday as the bank’s shares plummeted after the firm said it would book a $1.8 billion loss related to securities sales. Some firms advised founders to look for alternative banking options.
“It’s very sad what is happening to such an incredible institution that has been a core part of our technology ecosystem,” said Sandi Lin, CEO and co-founder of Seattle startup Skilljar, via email on Friday morning, before the closure was announced.
Seattle venture capital firm Madrona Venture Group said it spent “considerable time Thursday helping our founders get through this situation and we are continuing to focus on this today.”
GeekWire visited the SVB office in downtown Seattle Friday morning. A security guard said employees were asked to work from home.
We reached out to Minh Le, market manager for Silicon Valley Bank’s Washington and Western Canada region, for comment and we’ll update if we hear back.
The FDIC said insured depositors will have full access to their deposits no later than March 13, while SVB’s branches will reopen on Monday. It will pay uninsured depositors an advanced dividend within the next week. The FDIC insures accounts up to $250,000. “As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors,” it noted Friday.
Whether the closure of SVB triggers a broader contagion remains to be seen. “Since the whole financial system runs on confidence, a loss of confidence can quickly spiral into a real liquidity crisis,” said Chris DeVore, founding managing partner at Founders’ Co-op.
Philip Bond, a finance professor at the University of Washington, told GeekWire on Thursday that SVB could be the “canary in the coalmine.” Recent interest rate hikes have been so large “that they will test the limits of deposit stickiness,” he said.
“The biggest risk I’d worry about is that many banks are exposed to the same forces that SVB is,” Bond noted. “This would be a big negative shock to the economy.”
Brad Hargreaves, an entrepreneur and former venture partner at Maveron, ran a company during the Great Financial Crisis and said that “this is the first thing I’ve seen since that is even vaguely reminiscent of that time.” In a tweet thread, he said mass layoffs could be coming as soon as Friday because companies that banked with SVB may not be able to make payroll.
GeekWire reporter Nate Bek contributed to this report.
from GeekWire https://www.geekwire.com/2023/regulators-close-silicon-valley-bank-in-stunning-downfall-for-financial-mainstay-of-tech-industry/
