The sudden collapse of Silicon Valley Bank has sent shockwaves through the tech startup community and left thousands of businesses wondering what happens to their millions of dollars in deposits, money market investments, and outstanding loans. In the largest bank failure since the financial crisis, SVB, the 40-year-old bank known for handling deposits and loans for thousands of tech startups, was shut down by regulators on March 10, 2023.
The Federal Deposit Insurance Corporation, which became the receiver of SVB, insures $250,000 of deposits per client, but because SVB serves mostly businesses, 95% of its deposits are uninsured. Clients with uninsured funds will receive a dividend within a week covering an undetermined amount of their money and a "receivership certificate for the remaining amount of their uninsured funds."
The FDIC has said that insured depositors will have access to their money by Monday morning, but the process is much more convoluted for uninsured depositors. With no access to their funds, employees of these companies are at risk of not being able to make payroll. Rippling, a back office-focused startup, is moving “key elements of our payments infrastructure” to JPMorgan Chase to ensure its clients can pay their employees on time.
Treasury Secretary Janet Yellen expressed “full confidence in banking regulators to take appropriate actions in response” to the SVB meltdown. The FDIC has said it is “working diligently” to ensure employees are paid. The process has been far from smooth, and many execs are still waiting for their funds. It is possible that companies will change how they think about their banking partners, and diversify their bank accounts.
The rapid failure of SVB has also raised concerns regarding systemic risk to the banking system. SVB has always been overexposed to tech, and the liquidity event occurred when startups quickly rushed for the exits as VCs instructed portfolio companies to get their money out. This could serve as a wakeup call to regulators when it comes to dealing with banks that are heavily concentrated in a particular industry.