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Here's how the second-biggest bank collapse in U.S. history happened in just 48 hours
As dust begins to settle on the biggest American bank failure since 2008, members of the VC community lament the role other investors played in SVB's demise.
The roots of SVB’s collapse stem from dislocations spurred by higher rates. As startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising, SVB found itself short on capital. It had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss, the bank said late Wednesday.
The sudden need for fresh capital, coming on the heels of the collapse of crypto-focused Silvergate bank, sparked another wave of deposit withdrawals Thursday as VCs instructed their portfolio companies to move funds, according to people with knowledge of the matter. The concern: a bank run at SVB could pose an existential threat to startups who couldn’t tap their deposits.
SVB customers said CEO Greg Becker didn’t instill confidence when he urged them to “stay calm” during a call that began Thursday afternoon. The stock’s collapse continued unabated, reaching 60% by the end of regular trading. Importantly, Becker couldn’t assure listeners that the capital raise would be the bank’s last, said a person on the call.
“When you say, `Hey, get your deposits out, this thing is gonna fail,′ that’s like yelling fire in a crowded theater,” Falvey said. “It’s a self-fulfilling prophecy.”
Another venture investor, TSVC partner Spencer Greene, also criticized investors who “were wrong on the facts” about SVB’s position.
“It appears to me that there was no liquidity issue until a couple of VCs called it,” Greene said. “They were irresponsible, and then it became self-fulfilling.”
Investors implore the government to step in after Silicon Valley Bank failure
Voices from tech and finance are increasingly calling for the federal government to push another bank to take over the failed Silicon Valley Bank.
Venture capitalist and former tech CEO David Sacks called for the federal government to push another bank to buy SVB’s assets, writing on Twitter, “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.”
VC Mark Suster agreed, tweeting, “I suspect this is what they’re working on. I expect statements by Sunday. We’ll see. I sure hope so or Monday will be brutal.”
Investor Bill Ackman made a similar argument in a lengthy tweet, writing, “The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to 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 believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs).”
Benchmark partner Eric Vishria wrote, “If SVB depositors aren’t made whole, then corporate boards will have to insist their companies use two or more of the BIG four banks exclusively. Which will crush small
These venture bros sparked a bank run on a bank that specialize in financing for their industry and now have the nerve to ask the government to step in to help secure their money. If a bank as responsibly run as SVB can be killed off due to overexposure to tech start ups and crypto, this might be the first publicly facing domino of the consequences of banks gambling in crypto for returns to fall.
I like how that one rich guy say if the world woke up to uninsured deposit it meant the whole system will fall. As if people didn't know deposits are only insured up to a degree beforehand.