The closure of Silicon Valley Bank (SVB) by regulators last week has sent shockwaves throughout the tech and venture capital community, with uncertainty about the ripple effect of the bank’s failure in the coming weeks. The failure marks the largest bank failure since the global financial crisis more than ten years ago.
The FDIC, which covers accounts up to $250,000, said insured SVB depositors would regain access to their accounts no later than Monday morning, and uninsured depositors would receive “an advance dividend within the next week.”
However, there are concerns that the failure of SVB could have broader implications for the startup world, which is already facing a more challenging climate to find funding. Ashley Tyrner, CEO of FarmboxRx, warned that the bank’s closure would have more far-reaching impacts on the startup world, as SVB was “the hub to innovation for startups.” Tyrner described how “innovation in the startup world is bleeding today” and that “everybody is trying to figure out what Monday will bring.”
— Jeff Mordock (@JeffMordock) March 10, 2023
There are also concerns about the weakness of the Biden administration’s response to the situation. During a House Ways and Means Committee hearing last week, Treasury Secretary Janet Yellen reassured lawmakers that the government was monitoring the Silicon Valley Bank crisis closely. However, since her comments, regulators shut down the bank, and there has been little communication from SVB about the remaining millions in accounts held with the bank.
Roughly 87% of Silicon Valley Bank's deposits were uninsured as of December 2022, according to its annual report.
Banking crisis starting? 😲
Don't worry, I'm sure the Biden Admin will get a diversity and inclusion team working on it. 🙄https://t.co/CfjIuw80g3
— Jeff Harris (@TheVotersSay) March 10, 2023
If enough banks fail the only way depositors are going to get their money back is if the #Fed prints it. So either way everyone gets screwed. Either the FDIC defaults and depositors lose their money, or the Fed bails out the FDIC with QE and deposits lose most of their value.
— Peter Schiff (@PeterSchiff) March 10, 2023
Tyrner shared that while the FDIC covers accounts to the $250,000 threshold, she has needed more communication with SVB about her remaining millions. “The bank is not telling us anything, so we have no idea if [$250,000] our entire balance will be available on Monday. We’re very fortunate to have diversified our accounts and have plenty of money to keep the business afloat in other banks. But SVB will not tell us anything.”
This lack of communication has led to concerns that a more comprehensive bailout may be necessary to prevent the failure of Silicon Valley Bank from having broader implications on the startup world.
Tyrner explained that the economy had created a more difficult climate for startups to find funding, with VCs not writing checks to startups and deposits not coming into the bank. “That’s the bigger piece here than just that they made a bad investment. They’re not getting deposits because venture capital is not funding startups like they were two years ago,” she said.
The situation with Silicon Valley Bank highlights the precarious position of the startup world and the importance of access to funding for innovation and growth. It also raises questions about the strength of the Biden administration’s response to the situation and the potential need for a wider bailout to prevent further damage to the startup ecosystem.
With the uncertainty of the coming weeks and the weakness of the government’s response, the failure of Silicon Valley Bank is a reminder of the need for a robust and resilient financial system to support innovation and growth.