This Monday will be decisive. After Friday’s fall of the Silicon Valley Bank (SVB), the US government and financial regulators are racing against the clock to find a solution that will allow depositors to get their money back and avoid a crisis of confidence that could spread to other banks . According to Portal, there could be an official announcement from President Joe Biden’s administration in the next few hours to support the bank’s deposits and prevent the effects of a bankruptcy from spreading.
Treasury Secretary Janet Yellen also wanted to send a message of reassurance this Sunday. Yellen has been working with regulators “all weekend” to “design appropriate policies to respond to the situation,” he asserted in an interview aired on CBS television. “We are concerned about depositors and are focused on solving their needs,” said the senior official, who also stressed that the administration wants to ensure that “the problems that exist in one bank do not spread to others, who are solid”.
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The Federal Deposit Insurance Corporation (FDIC), the regulator that took over the bank, began an auction of the company on Saturday, according to Bloomberg. Bids were expected to be accepted by Sunday afternoon and the winner may not be known until later in the day. According to the sources cited by the agency, it is possible that it will not provide any results.
The SVB recorded the largest withdrawal of deposits from a bank in recent US history last Thursday. In ten hours, $42,000 million disappeared from their books, or more than $1 million per second. So far, the biggest rush for deposits by a bank came in 2008, when Washington Mutual customers demanded about $16.7 billion in 10 days. On Friday, the FDIC took control of the California financial institution.
The FDIC guarantees each bank deposit up to $250,000. But SVB’s customers were, for the most part, corporations — almost all in the tech sector, from Roku to communications giant Discovery — with much larger funds in the bank and who depend on that money to meet their day-to-day expenses, including the payroll of your employees. According to the financial institution, 96% of its deposits are not guaranteed.
As of December 31, 2022, the bank had $175,000 million in deposits and $209,000 million in assets.
Urgency for payroll
The regulator announced on Friday that uninsured custodians would receive a proportionate advance on their funds during the week. The rest would likely have to wait for the liquidation of the bank’s assets, a process that can be lengthy and doesn’t guarantee creditors will get all their money back.
A good portion of the companies affected are startups, the niche that Silicon Valley Bank specialized in. Because it is common practice in the United States for companies to pay their employees bi-weekly, these small businesses face the real possibility of not being able to meet their payroll obligations this Wednesday the 15th.
Throughout the weekend, those responsible for several of them have been begging the authorities for help through social networks, given the precarious situation they may be in. “The real victims of the collapse of the SVB are the custodians: the start-ups with tens to hundreds of workers who can no longer pay salaries must leave their people in the technical strike or fire them on Monday,” he stressed via his Twitter account Garry Tan, CFO of Y Combinator, an incubator for such companies.
Thousands of start-ups and small businesses are at risk from the SVB bankruptcy. We call for depositor recovery and regulation to prevent this catastrophe.
650 founders who employ more than 22,000 people have already signed. https://t.co/pfuObWnhts… https://t.co/lF3ILN4s3p
— Garry Tan 陈嘉兴 (@garrytan) March 11, 2023
“The SVB collapse may seem like a 1 percent problem that only affects the tech elite. Is not true. This hurts small businesses started by people who work hard and pay modest mortgages in the middle of the country. This is affecting families who have to support their children,” wrote Ohio entrepreneur Lindsey Michaelides, founder of startup Strongsuit, on the same social network.
In her televised interview, Yellen stressed that the Biden administration is not considering any moves to bail out the bank similar to what Washington did after the global financial crisis erupted in 2008. “During the financial crisis, there were investors and owners of large systemic banks who received a bailout… the reforms that have been implemented mean that we will not do it again,” stressed the finance minister.
The senior official emphasized her message of calm to eliminate the possibility of contagion. “Americans need to be confident that the banking system is sound, that it can meet the borrowing needs of families and businesses, and that savers don’t have to worry about losing access to their money,” he said.
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