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The failure of Silicon Valley Bank has global repercussions

It was called Silicon Valley Bank, but its collapse is sending shockwaves around the world.

From winemakers in California to startups across the Atlantic, companies are scrambling to figure out how to manage their finances. Their bank suddenly closed Friday A recession means not only businesses, but also all their employees whose paychecks can be mired in chaos.

California Gov. Gavin Newsom said Saturday that he was speaking with the White House “to stabilize the situation as quickly as possible, protect jobs, protect people’s livelihoods and protect the entire innovation ecosystem that serves as the tent poles for our economy.”

US customers with less than $250,000 in the bank can rely on insurance provided by the Federal Deposit Insurance Corporation. Regulators are trying to find a buyer for the bank in the hope that it can complete more customers.

US regulators shut down Silicon Valley Bank in sudden collapse

The headquarters of Silicon Valley Bank is seen on March 10, 2023 in Santa Clara, California.

Typhoon Koskun/Anadolu Agency via Getty Images

This includes customers like Circle, a major player in the cryptocurrency industry. It said the SVB has about $3.3 billion of its roughly $40 billion in reserves for the USDC currency. This resulted in the value of the USD coin, which tried to stay firmly at $1, briefly falling below 87 cents on Saturday. It later rose above 97 cents, according to CoinDesk.

Across the Atlantic, startup companies woke up on Saturday to the news that SVB’s UK business would stop accepting payments or deposits. The Bank of England said late on Friday it would place Silicon Valley Bank UK in its insolvency procedure, paying eligible depositors up to 170,000 British pounds ($204,544) for joint accounts “as soon as possible”.

“We know there are a large number of startups and investors in the ecosystem who have significant exposure to SVB UK and will be very concerned,” Dom Hallas, executive director of Coadec, which represents British startups, said on Twitter. He mentioned “anxiety and panic”.

The Bank of England said SVB UK’s assets would be sold to pay creditors.

It’s not just startups feeling the pain. Bank collapse is affecting another important California industry: fine wine. It has been a dominant lender to vineyards since the 1990s.

“It’s a huge disappointment,” said winemaker Jasmine Hirsch, general manager of Hirsch Vineyards in Sonoma County, California.

Hirsch said he expects his business to recover. But he worries about the broader implications for small vintners seeking lines of credit to plant new vines.

“They really understand the wine business,” Hirsch said. “The disappearance of this bank, as one of the most important lenders, will absolutely have an impact on the wine industry, especially in an environment where interest rates have risen.”

In Seattle, Shelf Engine CEO Stefan Kalb finds himself immersed in emergency meetings to figure out how to cover payroll instead of helping his startup company manage grocery food orders.

“It’s been a brutal day. We literally have every single penny in Silicon Valley Bank,” Kalb said Friday, citing deposits that are now pegged in the millions of dollars.

He’s filing a claim for the $250,000 limit, but that won’t be enough to pay Shelf Engine’s 40 employees for long. That could force him to decide whether to start furloughing employees until the mess is cleaned up.

“I’m expecting the bank to be sold out by the weekend,” Kalb said.

San Francisco-based employee performance management company Confirm.com was among Silicon Valley bank depositors who rushed to get their money out before regulators seized the bank.

Co-founder David Murray credited an email from one of Confirm’s venture capital investors, urging the company to withdraw its funding “immediately,” citing signs of a run on the bank. Such activity precipitates cash flight, leading to bank collapses.

“I think a lot of founders share the argument that, you know, there’s no downside to raising money to be safe,” Murray said. “And so we all did it, hence the bank run.”

Martin Varsavsky, an Argentine entrepreneur with investments across the tech industry and Silicon Valley, said the US government needs to act faster.

One of his companies, Overture Life, which employs about 50 people, had about $1.5 million in deposits in financially troubled banks but could rely on other holdings elsewhere to cover payroll.

But other companies have a higher percentage of their cash in Silicon Valley banks and need access to more than the amount protected by the FDIC.

“If the government allows people in Silicon Valley banks to take at least half the money next week, I think everything will be fine,” Versavsky said Saturday. “But if they were stuck at $250,000, it would be an absolute disaster where so many companies wouldn’t be able to meet payroll.”

Andrew Alexander, a calculus teacher at a private San Francisco high school that uses a Silicon Valley bank, wasn’t too worried. His next paycheck isn’t due for another two weeks, and he’s sure many problems will be solved.

But he worries for friends whose livelihoods are more deeply intertwined with the tech industry and Silicon Valley.

“I have a lot of friends in the startup world who are kind of terrified,” Alexander says, “and I really feel for them.” It’s quite scary for them.”

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