Hi Everyone – this was quite an exciting weekend in the world of Crypto-friendly Finance and Accounting. We spent the weekend watching the Silicon Valley Bank collapse and FDIC intervention. The end of SVB will change venture financing in the near future.
TL;DR; Silicon Valley Bank – the main banking institution of Venture Capitalists and Venture Capital backed startups, collapsed in the second-largest US Bank failure ever. By the end of the weekend, the government agreed to make all depositors whole and sort out liquidating the funds later, but it was an exciting and terrifying weekend.
After a day to reflect, we reviewed the events chronologically and highlighted some tweets for this social media round-up. Thank you to all our friends and family who were patient with us as we followed Twitter more than normal over the weekend.
On Wednesday, a few VC-backed companies started making large withdrawals, prompting discussions in various group chats popular with the silicon valley investor crowd. According to Bloomberg, the run started when Peter Thiel advised Founders Fund Startups to withdraw their funds. As other venture capitalists followed suit, SVB had a classic bank run that took place at 21st Century Speed. Because of the intricacies of bank accounting, the speed of the withdrawals forced them to sell “hold to maturity” assets – which are not marked to market – at market rates, causing immediate losses and a liquidity catastrophe.
By Friday morning (8 AM PST/11 AM EST), FDIC seized SVB Bank, unwilling to wait until 5 PM for more billions to leave the bank.
To be clear, the systemwide deposit guarantee is a temporary measure which stays in place until an updated deposit guarantee regime is instituted with larger guarantee limits. Think: the Treasury’s guarantee of money market mutual funds in 2008 until new money market mutual fund… https://t.co/UJzDRaaLEV
— Bill Ackman (@BillAckman) March 13, 2023
FDIC nearly immediately announced that:
- 250K insured deposits would be available Monday
- Some portion of the remaining funds would be available as a “Special dividend” later in the week.
- The remainder owed would be documented to be paid as assets were sold.
On Saturday, it became clear that Circle, the backer of USDC, had $3.3 Billion (out of $40 Billion) in reserves at SVB. Circle temporarily dropped the USDC-Dollar Peg, dropping as low as 88 cents.
Many VC-backed startups had 100% of their money at SVB. Payrolls of Tech companies were in danger of not running.
By Sunday, Treasury, Federal Reserve, and FDIC issued a joint statement saying SVB would be shut down. Also, depositors would have access to 100% of their funds on Monday, and SVB assets will be sold. If FDIC resources are used to cover uninsured accounts (over $250,000), they will be collected from all banks with a special assessment.
Some blame investors, but the tweet below exemplifies the problem with that mindset.
.@DavidSacks says unlike the 2008 bailouts, Silicon Valley Bank stockholders, bondholders, and executive stock options should be wiped out, but the people and small businesses who deposited money must be protected so this contagion doesn't spread:
"Blaming the depositors in this… https://t.co/LaEtyLARkJ pic.twitter.com/KQdOa3XccX
— kanekoa.substack.com (@KanekoaTheGreat) March 12, 2023
Additionally, Signature Bank in NY had similar problems and was closed on Sunday. I wonder what that means…
Nothing to see here. Completely coincidental and unrelated news for those who claim bank failures don’t pose systemic risk. https://t.co/oZMPJgxTpH
— David Sacks (@DavidSacks) March 12, 2023
How could a bank collapse in days? SVB appeared to allow unlimited wire transfers from their website with limited controls. Companies were able to remove their entire deposit in minutes to new banks. Most banks require significantly more friction points to withdraw funds.
Just got back from 3 hours at Well Fargo. To reactivate a dormant bus account.
I am tagged a VIP account and yet:
– Supervisor had to approve everything
– No wires over $100,000
– 5 days to clear a check
– Told to “do it online instead” after 2 hours
This is why SVB existed
— Jason ✨Be Kind✨ Lemkin (@jasonlk) March 13, 2023
Because a Bank Assessment covers this bail-out instead of general tax revenues, zero tax dollars are used.
We are glad that we were able to reach all of our clients who bank at SVB and check in on them. If you are banking with SVB and are looking for new accounting and finance advice with experience in treasury functions, we are here for you, so reach out.