SANTA CLARA, CALIFORNIA – MARCH 10: The Silicon Valley Bank (SVB) logo is seen through a rain … [+]
Silicon Valley Bank, the sixteenth largest U.S. bank, suddenly imploded after 40 years. A run on the bank occurred after customers realized the once highly respected financial institution primarily serving the technology community suffered severe financial challenges.
There was a fear of contagion to other similarly situated banks, concerns that workers at SVB would lose their jobs, other banks would enact hiring freezes and layoff workers in an abundance of caution, cutting costs in case they may be next in line to falter.
Amid all the bad news, there is a ray of hope for some workers. Employees of SVB, according to Reuters, were offered 45 days of employment at 1.5 times their salary paid by the Federal Deposit Insurance Corporation, the agency responsible for taking over SVB and sorting everything out.
Employee Retention For Now
The prior 8,528 SVB employees will be onboarded this weekend to an “Employee Retention” project and offered benefits, including healthcare, by SVB. The people who accept the offer will work remotely, and the branch employees will return to their branches.
According to the FDIC, the bank’s main office in Santa Clara, California, and its 17 branches in California and Massachusetts will be open on Monday. There was no comment about whether or not the employees will stay longer than the current program.
Will The Epic Collapse Cause Widespread Layoffs?
Andrew Yang, a businessman and Democratic political candidate in 2020 for the U.S. Presidency called for action from the government to intercede before a financial contagion takes place, leading to mass layoffs, Newsweek reported. Garry Tan, president and CEO of the highly regarded Y Combinator startup incubator, voiced his concerns in an NPR piece, predicting, “If the government doesn’t step in, I think a whole generation of startups will be wiped off the planet,” which would cause substantial job losses in the startup ecosystem.
Where Were The Regulators?
Janet Yellen, U.S. Treasury Secretary, said she was carefully and closely monitoring the developments unfolding at SVB and other banks. The Treasury Secretary met with banking regulators to ensure the banking system was solid. Yellen said she had the “full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient,” the BBC reported. There are, however, questions about where were the U.S. regulators. Their jobs are to monitor, conduct surveillance, audit, oversee, and examine banks to ensure the safety of their customers and their money. How did they miss this crisis?
Here’s What Happened
The bank that catered to well-healed Venture Capitalists, many startups, and tech companies confronted interest-rate risk on $91 billion in bonds, forcing a firesale of its $21 billion bond portfolio, incurring outsized losses of around $1.8 billion. The bank announced plans to raise about $2.3 billion in fresh capital to remain solvent and keep the doors open.
The sudden imposition of Silicon Valley Bank struck fear in their customers. The FDIC, the U.S. government entity responsible for insuring deposits, only covers deposits up to $250k. More than 90% of the money held at SVB was greater than the amount FDIC would cover. This fact raises the disturbing possibility that venture capitalists, startups and an array of other people and businesses may not get back all of their funds. If they do, it may be after a long, drawn-out process.
We are in the early days of figuring out what will happen next after the implosion of Silicon Valley bank. There are concerns that a contagion effect will occur if customers pull their money out of other banks in a similar shape to SVB.
Moreover, since the bank catered to startups, venture capital funds, cryptocurrency projects and other sectors, there are worries that the ongoing white-collar recession will deepen. Silicon Valley tech companies and other businesses will put hiring on the back burner and lay off personnel to cut costs if things worsen. Bloomberg reported that startup founders are getting worried about whether they’ll be able to meet payroll, and “At least one startup was planning to do layoffs today, but the Silicon Valley Bank situation forestalled those plans because the business, which banked with SVB, no longer had the capital to pay severance.”
If the funds are not immediately distributed to the bank clients, startups, who have been burning through their fundraising monies, unable to procure new rounds of investments in the current austerity climate, may not survive or need to conduct further rounds of layoffs to stay afloat.
