Last Friday (March 10, 2023), Silicon Valley Bank (SVB), a popular bank for tech start-up companies, experienced a sudden bank run and capital crisis that caused it to fail and consequentially fall under government control. It was the largest failure of a US bank since Washington Mutual in 2008. Companies such as BILL, Avalara, Patriot Software, Melio, and Rippling, which were customers of SVB, may be affected, although the extent of the fallout is still unknown.
UPDATE: A joint statement by the Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg was released stating that all depositors of Silicon Valley Bank will have access to their funds today, March 13, 2023.
About Silicon Valley Bank
SVB has concentrated on finance for tech entrepreneurs since its founding in 1983. It has helped almost half of the American technology and healthcare enterprises with venture capital backing. In fact, SVB was among the top 20 US commercial banks with $209 billion in total assets at the end of last year, according to the FDIC, despite being virtually obscure outside of Silicon Valley. Forbes ranked it among the top banks of 2023 just last month.
On March 8, SVB announced it had sold investments worth more than $21 billion, borrowed $15 billion, and would sell its stock quickly to raise $2.25 billion to make up for its recent losses. The announcement triggered a panic among key venture capital firms, who reportedly advised companies to withdraw their money from the bank. By the following day, a bank run ensued during which customers withdrew funds totaling $42 billion. Further reactionary withdrawals by depositors are expected to take place over the coming days.
The impact on SVB customers
The failure of SVB has had a big effect on startups, as many of them can't get their money out of the bank. Other large technology companies, media companies, and wineries were also affected. In response, companies and countries alike are stepping in to help. UK officials have announced that they will help UK tech firms affected by the bank's collapse, while Sam Altman, CEO of OpenAI, reportedly sent a six-figure loan to help one startup make payroll after the bank's failure.
Patriot Software, a customer of SVB, experienced temporary disruptions to its payroll operations, preventing some of its tens of thousands of American customers from paying their employees for one day. Mike Kappel, CEO of Patriot Software, expressed his frustration in a letter to customers, stating, "I’m sure you’ve heard the news that on Friday, March 10, the 16th-largest bank in the USA, Silicon Valley Bank (SVB), was shut down by California regulators, and it’s now under the control of the FDIC. Up until 3/10/23, SVB was the bank that Patriot Software used for 100% of its activities. This stunning bank failure managed to temporarily prevent 8,100 of Patriot’s tens of thousands of American customers from paying their employees for one day—Friday, 3/10/23."
Melio Payments, another SVB customer, also released a statement, saying, "While Melio does have accounts with Silicon Valley Bank, we are not dependent on them, and we have not experienced any operational impact as a result of the current situation. Our priority remains serving our customers, and we will continue to do everything we can to ensure they are not impacted by external factors."
What is being done to reduce the fallout
As the FDIC tries to cover both insured and uninsured deposits with special dividends, 89 percent of SVB's $175 billion in deposit liabilities are more than the FDIC's maximum insured amount. This has left many startups and other companies that banked with SVB in a state of uncertainty and financial insecurity. Many depositors had funds that well exceeded the FDIC insured amount of $250,000.
Treasury Secretary Janet Yellen has said that the government is not looking to provide a bailout for Silicon Valley Bank. Yellen stated that the FDIC's established procedures for resolving bank failures are appropriate and that the government's goal is to ensure that depositors are protected. She emphasized that the banking system is currently well-capitalized and liquid, and that the banks now in trouble are much too small to pose a threat to the broader system. While the FDIC will handle resolving the bank's collapse, it is not expected that the government will step in to provide other support.
It's still not clear what the full effects of the SVB failure will be. Check out this webinar by the Cloud Accounting Podcast and watch for future articles about the SVB collapse in The Woodard Report. We'll bring you the latest news as it develops along with commentary from our partners and industry experts.