SVB depositors will probably be bailed out by the taxpayers because SVB will be labeled “Too Big To Fail”. (UPDATE – Yep. All depositors will be bailed out. Shareholders will have $0.)
95% of their deposits were said to be uninsured, and many were the cash accounts of high-tech startups all over the world. VCs allegedly told their startups to keep their money at SVB.
All these startups are unable to make payroll next week, and even if they received partial reimbursement, their days are numbered. Since this means the VCs likely lost cash, there may not be an easy source of replacement investment cash available.
I can see VCs terminating some of their investments. They will tell Startup X that hey, you’ve got $40 million – we want our money back so are defunding you and withdrawing our investment. And then give that money to Startup Y which they now think has better opportunities for a future ROI.
Allegedly, the banking regulators are spending this weekend looking at
- partial reimbursement of uninsured accounts within a week, but perhaps as little as 30% returned
- looking at what they can get by quickly selling SVB assets
- looking to see if there is a buyer that can take over SVB.
- Attempting to determine if other banks will soon fail and to identify other organizations that might fail due to SVB’s failure
It’s possible they will structure a bail out deal that possibly requires the NewSVB to pay the government back, eventually.
Bailing out bankers is not going to be popular, particularly when much of the executive staff sold large numbers of shares in the past two weeks. It’s hard to know who people despise more – bankers or the public health quacks that killed the economy without ever stopping Covid.
UPDATE
Yes – SVB had bought government favors with campaign donations: Chuck Schumer returns Silicon Valley Bank donations (cnbc.com)
Of course – Gov Newsom of California had close ties, including wineries that bank there, and a $100k donation from an executive to his family’s charity. Report: Newsom has deeper ties to Silicon Valley Bank than he let on (sfgate.com)
Seen on Twitter (so 100% reliable sourcing, good enough for the news media!)
On social media I see many doom mongers urging everyone to take their money out of banks on Monday, thereby creating a bank run and destruction of the banking system. Great idea, folks. Not.
Hopefully, the executives who mismanaged a $210 billion bank into failure will not be permitted to ever again work in the financial sector.
In the end, those with deposits are being bailed out. The techbros and others are wealthy campaign contributors – there was little question the government would step in and bail them all out. They insist it won’t cost taxpayers money, but experts also said the Covid vaccine would stop infection and transmission of Covid so there’s that problem with expert predictions…
