Silicon Valley Bank
This past week, Silicon Valley Bank collapsed. It happened very quickly – over less than two days.
It is hard to overstate how shocking this is. Silicon Valley Bank is – was – the 16th biggest bank in the country. It had $212 billion in assets, making it the second-largest bank failure in U.S. history after Washington Mutual in 2008.
This was not some easy-come-easy-go fly-by-night company – this was a genuine decades-old institution. It had 17 branch offices where people used to go and, you know, bank.
Thousands of companies held their cash in Silicon Valley Bank. Roku reported having $487 million in cash there. Camp Store reported having most of their cash at SVB – and is having an emergency weekend sale so it can try and pay its payroll on Monday. One report said that 97% of SVB’s clients – mostly companies – had more than $250,000 in their accounts. The FDIC only insures up to $250,000 per client. That means that Roku is now worried about whether it will get back $486.75 million. There are thousands of companies in the same boat.
The average American was unlikely to be invested in Silicon Valley Bank. But the average American will be affected as thousands of businesses seize up and lay people off. One investor said this was like “a bomb going off wiping out a generation of startups, including biotech companies.” Imagine dozens of life-saving drugs that go undiscovered.
Why did this happen? Mismanagement. The folks at SVB failed to account for rising interest rates reducing the value of their bond portfolio. That miscalculation alone wouldn’t normally kill a bank. But there was a rush for the door that drained their cash more quickly than most could have imagined. Confidence is a powerful thing. When you lose it in a fluid environment, you lose everything.
That mismanagement does not extend to SVB’s clients. It’s like blaming someone for going to eat at a restaurant chain and getting poisoned. Their only sin was that they chose the wrong bank – which by the way was a massive bank and the industry standard.
As I’m writing this, regulators and government officials are cobbling together a rescue plan. Hopefully they will come in and restore confidence. Companies like Roku and Camp will be able to go back to their businesses instead of freaking out about their bank. Employees will keep their jobs. Because that’s the main thing at stake here. If Silicon Valley Bank can disappear virtually overnight, what is safe?
