SVB: break affects payments even with US bailout – 03/13/2023 – Market

Even with the help of the US government, the collapse of SVB (Silicon Valley Bank) last Friday (10) has already caused problems for its customer base, almost all of them with deposits above the limit of government insurance.

The California Department of Financial Protection and Innovation closed the SVB on Friday, and two days later the US government guaranteed that all customers would have full access to the funds deposited at the institution. About 90% of them had deposits above US$250,000 insured in the country’s guaranteed credit fund, the FDIC (Corporação Federal Assuradora de Depósitos).

This Monday (13), the FDIC said that all funds were transferred to a newly created “bridge bank” so that SVB customers can access them starting this morning, in the same way the bank operated, including an ATM and debit card.

Amidst the uncertainties over the weekend, however, there were secondary impacts. Etsy, an online commerce platform similar to Market Livre focused on graphic design and craft products, sent emails to sellers warning that payments would be delayed, which mainly affects small merchants.

The messages, which were shared by users on social media, say the delay “was caused by recent developments involving the SVB, which Etsy uses to facilitate payments for some sellers.”

The crisis also reached Hollywood, with Wrapbook, a startup founded in 2018 to process payments for audiovisual professionals, which claimed to have 96% of its funds deposited in the SVB. The company that the crisis would postpone payments and check processing, but hopes to return to normalcy by Wednesday (15).

The CEO of Compass Coffee, a network that operates in the Washington capital region, told Fox Business that there could be a delay in employee payments.

Other companies had most of their resources in SVB, like Wrap. This is the case of Roku, a company that manufactures a streaming device similar to Google’s Chromecast. In all, more than a quarter of the company’s equity was in the bank. Of the company’s $1.9 billion in cash, $487 million was deposited at SVB, according to the company’s report to the US Securities and Exchange Commission.

Others have a smaller percentage but a much larger volume of resources, such as Circle, a payment platform that manages the USDC cryptocurrency. The company said it had $3.3 billion in deposits at SVB, out of the company’s roughly $40 billion.

Vox Media, which runs a number of portals such as Vox, The Verge and New York Magazine, also has “a substantial concentration” of resources in the bank, according to the New York Times, citing a company source.

For Paul Orlando, a professor at the University of Southern California and director of startup incubators and accelerators in the state, the impact could extend beyond employee pay. “The collapse of the SVB certainly affects startups that have done business with them, but it also impacts other companies interested in funding services for startups in general. It could certainly make it harder for startups to survive,” he said.

He believes, however, that bankruptcy will not trigger a collapse of the financial system, because, “in addition to government support in this crisis, many of today’s startups have good business practices after the last few years of inflation and reduced funding”, he says. . “I’m being optimistic, but companies will already be created to benefit from what happened with SVB. The cycle continues.”

This Monday morning, US President Joe Biden gave a speech to ensure that “Americans can have confidence that the banking system is safe”. “Small businesses across the country that have accounts at these banks can breathe easy knowing they’ll be able to pay their employees and their bills,” he said.

The government has also been trying to pass on a message that the damage from bank failures will not be absorbed by the country’s citizens even with government help, to avoid a greater political crisis. Biden said on Monday that “no loss will be paid by taxpayers”, but of fees paid by banks to the FDIC (Federal Deposit Insurance Corporation).

He also emphasized that while deposits have been protected, the bank’s investors will not be insured. “They took a conscious risk, and when they don’t succeed, investors lose money. That’s how capitalism works.”

Founded 40 years ago, SVB had about $209 billion in assets and $175.4 billion in deposits as of Dec. 31, 2022, according to the FDIC, and crashed amid Fed rate hikes, the US central bank.

The bank experienced a boom in 2021, with an 86% increase in deposits, after a period of zero interest that led to an increase in risk appetite. To deal with this volume of contributions, the SVB started to put money in fixed long-term government bonds, an investment considered super safe. More than half of the bank’s resources were in this type of asset.

But interest rate hikes have driven bond prices down, and the bank sold at a loss to cover withdrawals made by startups amid slumping investment in the sector last year. The damage caused the bank’s shares to plummet and, under fears of bankruptcy, account holders rushed to withdraw money from the institution, until the bank was closed by the government on Friday.