Californian bank failure sends out shockwaves
NEW YORK — The collapse of the Californian financial institution Silicon Valley Bank has sent shockwaves far beyond the United States.
The bank, the 16th-largest in the US, failed on Friday after depositors hurried to withdraw money amid anxiety over the bank’s health. It was the second-biggest bank failure in US history after the collapse of Washington Mutual in 2008.
The US Federal Reserve and the Federal Deposit Insurance Corp, or FDIC, are considering setting up a fund that would allow regulators to backstop more deposits at banks that run into trouble in the wake of the bank’s collapse, Bloomberg News reported on Saturday.
Earlier on Saturday, US President Joe Biden, spoke with the Governor of California, Gavin Newsom, about the failure and how to deal with it.
Nearly half of the US technology and healthcare companies that went public last year after receiving early funding from venture capital firms were Silicon Valley Bank customers, the bank’s website says.
Employees of Silicon Valley Bank were offered 45 days of employment at one and a half times their salary by the FDIC, according to Reuters.
From winemakers in California to startups across the Atlantic Ocean, companies were scrambling to figure out how to manage their finances after their bank closed its doors.
On Saturday, managers of startups in the UK woke up to find SVB’s business there will stop making payments or accepting deposits. The Bank of England said late on Friday that it would put Silicon Valley Bank UK in its insolvency procedure, which will pay out eligible depositors up to 170,000 British pounds ($205,000) for joint accounts “as quickly as possible”.
“We know that there are a large number of startups and investors in the ecosystem who have significant exposure to SVB UK and will be very concerned,” Dom Hallas, executive director of Coadec, an advocacy group for British startups, said on Twitter. He talked of “concern and panic”.
The Bank of England said SVB UK’s assets would be sold to pay creditors.
‘Huge disappointment’
It was not just startups that were feeling the pain. The bank’s collapse affected another important industry in California: fine wines. The bank has been an influential lender to vineyards since the 1990s.
“This is a huge disappointment,” said Jasmine Hirsch, general manager of Hirsch Vineyards in Sonoma County in northern California.
However, some experts were forecasting that the fallout from the collapse would be limited.
“We do not see this as the start of a broader threat to the safety and soundness of the banking system,” said Jaret Seiberg, an analyst with the New York multinational investment bank TD Cowen.
Silicon Valley had a unique business model that was less dependent on retail deposits than a traditional bank, he said.