Investors call for government bailout amid Silicon Valley bank failure

Employees stand outside the shuttered Silicon Valley Bank (SVB) headquarters on March 10, 2023 in Santa Clara, California.

Justin Sullivan | Good pictures

Big names in Silicon Valley and the financial industry are publicly calling for the federal government to push another bank to take over the assets and liabilities of Silicon Valley Bank after the financial institution failed on Friday.

The Federal Deposit Insurance Corporation (FDIC) will insure up to $250,000 per depositor and can begin paying those depositors as early as Monday.

But most of SVB’s clients were businesses that had more than just deposits in the bank. As of December, more than 95% of the bank’s deposits were uninsured, according to regulatory filings. Many of these depositors are startups, and many worry they won’t get paid this month, triggering a widespread wave of failures and layoffs in the tech industry.

Investors worry that these failures could erode confidence in the banking sector, particularly mid-sized banks with less than $250 billion in deposits. These banks are not considered “too big to fail” and did not have to undergo routine stress tests or other safety valve measures in the wake of the 2008 financial crisis.

Venture capitalist and former tech CEO David Sachs called for the federal government to push another bank to buy SVB’s assets. He writes on Twitter“Where’s Powell? Where’s Yellen? Stop this crisis now. Declare that all depositors will be safe. Put SVB in the top 4 banks. Do this before Monday’s open or contagion spreads and the crisis spreads.”

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VC Mark Suster agreed, “I doubt that’s what they’re doing. I expect reports by Sunday. We’ll see. Either that or Monday is going to be brutal, I’m sure.”

Investor Bill Ackman made a similar argument in a Long tweetWriting, “The government has about 48 hours to correct an irreversible mistake. By allowing @SVB_Financial To fail without protecting all depositors, the world is waking up to what uninsured deposits mean – an unsecured liquid claim on a failing bank. Absent @jpmorgan @city Or @Bank of America Getting the SVB before Monday’s opening, I believe, is not possible, nor is the government guaranteeing all of SVB’s deposits, the giant suction noise you hear is the withdrawal of substantially all uninsured deposits from all but the ‘systemically important’ ones. Banks (SIBs).”

Benchmark Partner Eric Vishria wrote“If SVB depositors aren’t full, corporate boards should insist that two or more of the Big Four banks use their companies exclusively. This will crush the smaller banks. And get big enough to make the problem worse.”

Since its establishment nearly 40 years ago, SVB has become a hub for funding in the technology sector, particularly for startups and the VCs that invest in them. The company was known for expanding banking services to early-stage startups that struggled to get banking services elsewhere before building stable cash flow. But the company itself faced liquidity problems this year as start-up funding dried up and its own assets locked up in long-term bonds.

The company surprised investors with news that it would need to raise $2.25 billion to bolster its balance sheet. Reassurances from bank executives weren’t enough to stop a run, and depositors withdrew more than $42 billion. Thursday resultsIt set the second largest bank failure in US history.

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Many in the tech community spurred VCs to run after SVB’s announcement on Wednesday, as many told their portfolio companies to put their money in safe places.

“It’s a bank fueled by VC-driven frenzy,” Ryan Falvey, a fintech investor at Restive Ventures, told CNBC on Friday. “This is going to go down as one of the ultimate cases of an industry cutting its nose off its face.”

Observers are calling for irony as some VCs with notoriously libertarian free-market attitudes are now calling for bailouts. For example, reactions to Sachs’ tweet included statements like “Sorry sir. Suddenly the government responded?!?“and”We capitalists want socialism!

Some politicians opposed any bailout, including Rep. Matt Gates, R-Fla., Tweeting“If there is an attempt to bail out Silicon Valley Bank using taxpayer money, the American people can count on me to lead the fight against it.”

But financier and former Trump communications director Anthony Scaramucci argued“Bailout for SVP is not a political decision. Make no mistake Lehman. It’s not about who benefits rich or poor, it’s about stopping the contagion and protecting the system. Make depositors whole or expect tragedy. Unintended consequences.”

Hugh Son and Ari Levy contributed to this story.

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