The failure of Silicon Valley Bank (SVB) blocked tens of billions of dollars deposited there by startups and private equity funds, raising fears of a shock wave throughout the technology sector. “The financial partner of the innovation economy” was the slogan with which the SVB presented itselfplaced on Friday under the control of the US regulator FDIC to prevent further damage.
“They knew the entrepreneurial community,” Joseph DeSimone, a Stanford University professor and founder of several startups, told AFP. “They helped us recruit people, (…) they advised new managers, (…) Their disappearance is a real loss,” he estimated.
SVB boasted that “almost half” of its bioscience and technology companies are financed by US investors. The bankruptcy filing will allow each customer to recover up to $250,000, the maximum guaranteed by the FDIC, the Federal Deposit Insurance Corporation.
But according to SVB’s annual report, the share of uninsured deposits amounted to about 96% of the total US$173 billion entrusted to the bank. The FDIC said Friday that the return of these funds would depend on the amounts recovered from the sale of the bank’s assets.an often lengthy process with uncertain returns.
“The real victims of SVB’s downfall are depositors: startups with 10-100 employees, who can no longer pay salaries, will have to put people on strike or lay off Monday,” CEO Garry Tan reacted on Twitter. from Y Combinator, an incubator for young companies.
“Within a month or two, we will have wiped out a generation of American startups,” warned the manager. “It’s years of American innovation that are at stake.”
Other effects of BLS drop
According to the economist Luis Miguel Ortiz, this weekend will be key to see what is done with the bank and its depositors. For example, there is already talk that it will be bought by a larger bank, that it will cover all the deposits or even drop it and only cover US$250,000 per depositor.
“SVB is a special bank since its main depositors are technology companies (…) All this means that the consequences of bankruptcy not only have isolated effects at the level of depositors, shareholders, creditors, but it affects many venture capital and technology companies that had their financing or liquidity within or through the bank,” the specialist needs.
Finally, Ortiz points out that this situation is already affecting other medium-sized banks, since depositors are opting to withdraw their money and take it to large banks, while the Federal Reserve you should evaluate whether to continue with your aggressive interest rate hike plan.
With information from AFP.
Source: Larepublica
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