Silicon Valley Bank failure has investors calling for presidency aid

Big names in Silicon Valley and the finance sector are calling publicly for the federal government to push one other bank to assume Silicon Valley Bank’s assets and obligations after the financial institution failed on Friday.

The Federal Deposit Insurance Corporation (FDIC) will cover as much as $250,000 per depositor and should give you the option to start paying those depositors as early as Monday.

However the overwhelming majority of SVB’s customers were businesses that had greater than that on deposit on the bank. As of December, greater than 95% of the bank’s deposits were uninsured, based on regulatory filings. Lots of these depositors are startups, and plenty of are concerned that they may not give you the option to make payroll this month, which in turn could spark a large wave of failures and layoffs within the tech industry.

Investors are concerned that these failures could reduce confidence within the banking sector, particularly mid-sized banks with under $250 billion in deposits. These banks usually are not deemed “too big to fail” and don’t have to undergo regular stress tests or other safety valve measures passed within the wake of the 2008 financial crisis.

Enterprise capitalist and former tech CEO David Sacks called for the federal government to push one other bank to purchase SVB’s assets, writing on Twitter, “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that every one depositors can be protected. Place SVB with a Top 4 bank. Do that before Monday open or there can be contagion and the crisis will spread.”

VC Mark Suster agreed, tweeting, “I believe that is what they’re working on. I expect statements by Sunday. We’ll see. I sure hope so or Monday can be brutal.”

Investor Bill Ackman made the same argument in a lengthy tweet, writing, “The gov’t has about 48 hours to repair a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken as much as what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I think to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the enormous sucking sound you’ll hear can be the withdrawal of substantially all uninsured deposits from all however the ‘systemically essential banks’ (SIBs).”

Benchmark partner Eric Vishria wrote, “If SVB depositors aren’t made whole, then corporate boards may have to insist their firms use two or more of the BIG 4 banks exclusively. Which can crush smaller banks. AND make the too big to fail problem way worse.”

Since its founding almost 40 years ago, SVB had turn out to be a centerpiece of finance within the tech industry, particularly for startups and the VCs who spend money on them. The firm was known for extending banking services to early-stage startups which might have struggled to get banking services elsewhere before generating stable money flow. However the firm itself faced cashflow problems this 12 months as startup financing dried up and its own assets were locked down in long-term bonds.

The corporate surprised investors on Wednesday with news that it needed to lift $2.25 billion to shore up its balance sheet, and that it had sold all its available-for-sale bonds at a $1.8 billion loss. Reassurances from the bank’s executives weren’t enough to stop a run, and depositors withdrew greater than $42 billion by the end of the day Thursday, establishing the second-largest bank failure in U.S. history.

Many within the tech community blamed VCs for spurring the run, as many told their portfolio firms to place their money into safer places after SVB’s Wednesday announcement.

“This was a hysteria-induced bank run attributable to VCs,” Ryan Falvey, a fintech investor at Restive Ventures, told CNBC on Friday. “That is going to go down as considered one of the final word cases of an industry cutting its nose off to spite its face.”

Observers are calling out the irony as some VCs with notoriously libertarian free-market attitudes are at the moment are calling for a bailout. For example, reactions to Sacks’ tweet included statements like “Excuse me, sir. Suddenly the federal government is the reply?!?” and “We capitalists want socialism!“

Some politicians opposed any bailout, with Rep. Matt Gaetz, R-Fla., tweeting, “If there may be an effort to make use of taxpayer money to bail out Silicon Valley Bank, the American people can count on the undeniable fact that I can be there leading the fight against it.”

But financier and former Trump communications director Anthony Scaramucci argued, “It’s not a political decision to bailout SVB. Don’t make the Lehman mistake. It’s not about wealthy or poor of who advantages, it’s about stopping contagion and protecting the system. Make depositors whole or expect plenty of tragic unintended consequences.”

— Hugh Son and Ari Levy contributed to this story.