The aftermath of Silicon Valley Bank’s collapse is still unfolding, and the bank is now under FDIC control, allowing insured depositors to access their money as of Monday morning. While that may help some of the bank’s thousands of corporate customers make payroll in the coming days, it may not provide as much comfort to its many employees, who are probably wondering what happens next.
At this point, it’s hard to say.
Silicon Valley Bank’s failure marks the second-largest bank collapse in American history and the first of its size in roughly 15 years. The bank’s 17 branches, spread across California and Massachusetts, reopened Monday morning per the FDIC, and the bank’s employees are still needed to keep operations running. Even so, the bank could be looking at liquidation, or be auctioned off by the FDIC through a bidding process. The result could be SVB being absorbed by a larger institution, such as JPMorgan Chase, according to PitchBook.
Still, that leaves employees in a sort of limbo. Should they look for new jobs? Or wait the process out and see what happens? It could go either way. (Fast Company has reached out to Silicon Valley Bank for clarification on this matter.)
And it’s a stark possibility that some of SVB’s employees may see their professional lives upended. That’s what happened to many of Washington Mutual’s workforce when the company went belly-up in 2008 before being bought out by JPMorgan Chase. Tom McIntire, who recently retired and is now a full-time artist, was among the first wave of Washington Mutual layoffs. He says that he and many of his Seattle-area Washington Mutual colleagues had a challenging time after the bank failed and they lost their jobs.
“After I left WaMu, I was unemployed for a year and a half, and struggled to find any kind of work,” he says. He was in his fifties at the time and says that the only jobs he could find tended to pay around half of what he was earning at Washington Mutual. As such, “I never recovered, financially,” from the bank’s collapse. “It seemed harder on some of the older people trying to get into the job market in Seattle, people in their forties and fifties, specifically—but if you were further up in the organization, you were able to move around a little bit and have more options,” he adds, saying that some senior managers were able to find new jobs at Seattle-area corporations like Microsoft or T-Mobile.
But for many mid- or low-level Washington Mutual employees? It was a difficult adjustment, McIntire says.
Washington Mutual was, and remains, the largest single bank to fail in U.S. history. But banks do and have failed in the years leading up to SVB’s collapse too. The most recent was Almena State Bank, a small Kansas-based financial institution that closed in October 2020. The FDIC put the bank’s assets up for auction, and a month or so later, it was acquired by Wichita, Kansas-based Equity Bank.
But unlike Washington Mutual, Equity Bank kept a relative handful of Almena State Bank’s employees onboard, and most of them still work there, says Equity Bank’s chairman and CEO, Brad Elliott. The circumstances surrounding the bank’s failure were quite different too.
“Almena did a lot of small business lending, and was a large SBA lender,” says Elliott. “They had a relationship that had a [check kite]—a customer floating checks from one institution to another,” he explains, which ultimately “took a big chunk out of its capital and started its demise.”
“It was one relationship that was fraud-related, and unrelated to the bank’s management and operations,” Elliott says, so Equity Bank was willing to place a bid on the bank, and ultimately came away with Almena’s $65 million or so in assets and deposits.
As for what the process looked like for Almena’s employees? “We had the right to take all of the employees, none of them, or to pick and choose. We took essentially all of them, and most are still with us,” Elliott says. “There was a period of time where they actually worked for the FDIC . . . before they came over to us,” he says, which is what he expects will happen with SVB’s employees too.
“I imagine they’ll keep all of the employees to run the institution, or keep a majority of them,” he says. “But maybe not the CEO.”
Silicon Valley Bank is more or less under new management and hasn’t completely disappeared—as such, it still needs manpower to run the business. So, for the time being, Elliott says the bank’s workforce will likely keep chugging along until the FDIC decides what to do next. There’s still the very real possibility, however, that those employees could find themselves unemployed in the near future.
BuzzFeed Inc said on Monday that most of its cash and cash equivalents were held at Silicon Valley Bank, which was shut down last week.
The digital media firm said it had about $56 million in cash and cash equivalents at the end of 2022.
Startup-focused lender SVB Financial Group last week became the largest bank to fail since the 2008 financial crisis, sending shockwaves through the global financial system and prompting regulators to step in to contain the fallout.
Shares in BuzzFeed were down 8.6% at $1.17 in extended trading on Monday.
The company, which has been grappling with a tough advertising market amid concerns over a slowing economy, also reported a 27% decline in ad revenue to $50.5 million in the quarter that ended Dec. 31.
It expects first-quarter overall revenue in the range of $61 million to $67 million. BuzzFeed reported revenue of $91.6 million for the same period last year.
The largest bank failure since the 2008 crisis has triggered a major U.S. government intervention to protect the financial system.
Silicon Valley Bank, the nation's 16th largest bank, collapsed on Friday, forcing a government takeover and calling into question the fate of almost $175 billion in customer deposits.
On Sunday, Signature Bank, the 29th-largest bank in the U.S., closed its doors, suggesting the financial panic had spread.
Many bank stocks plummeted in early trading on Monday. First Republic Bank dropped 65% before trading was halted; Western Alliance Bancorp fell almost 60%. Charles Schwab, the eighth-largest U.S. bank, dropped nearly 10%.
"This has been riding on a roller coaster the last couple of days," Joe Lynyak, a partner at the international law firm Dorsey & Whitney and an expert on bank failures, told ABC News. "Suddenly, we're in a crisis."
Here's what you need to know about what caused the Silicon Valley Bank failure, how far it has spread, and what it means for you.
Why did Silicon Valley Bank collapse?
The failure of Silicon Valley Bank resembles an "old-fashioned bank run," William Chittenden, a professor of finance at Texas State University, told ABC News.
The bank's deposit base, which draws heavily from startup firms in the tech industry, tripled in size during the pandemic-era tech boom between 2020 and 2022. Rather than invest all of the deposits into other startups or venture firms, the bank placed a sizable share of the funds into long-term Treasury bonds and mortgage bonds, which typically deliver small but reliable returns amid low-interest rates.
In short order, however, the low-interest rate environment evaporated. Over the last year, the Federal Reserve raised its benchmark interest rate by 4.5%, the fastest pace since the 1980s. The sudden spike in interest rates dropped the value of Silicon Valley Bank's Treasury bonds and mortgage bonds, punching a hole in its balance sheet.
Facing a difficult business environment for tech companies, some large clients pulled money from the bank last week and it was forced to sell some of the distressed securities in order to provide the cash.
"When the bank started selling the assets, it became more evidence of the value that they'd lost," Anat Admati, a professor at Stanford's Graduate School of Business, told ABC News.
"Imagine that your entire assets are your house and you bought the house with very little down payment and housing prices go down," Admati added. "You're basically underwater, meaning if you sell the assets, you can't pay your debt."
The vulnerable condition of the bank's balance sheet scared other major depositors, who in turn pulled their funds from the bank, prompting a bank run that gained momentum quickly since the bank depended on a relatively small number of large depositors. It collapsed within days.
"The bank simply didn't have enough cash on hand to meet all of their depositor needs," Chittenden said.
Escalating the financial risk, New York-based Signature Bank shuttered on Sunday at the order of state officials. The bank, which had recently welcomed cryptocurrency deposits, fell prey to fears of a bank run among those who held risky assets, Chittenden said.
"The run on Silicon Valley Bank kind of spooked those customers," Chittenden added. "So Signature Bank went under."
What did the government do in response to the collapse of Silicon Valley Bank?
The U.S. government has taken speedy and extraordinary steps to limit the risk posed to the financial system.
"The government was caught unawares and had to take extreme emergency action," said Lynyak of Dorsey & Whitney.
Almost immediately, the Federal Deposit Insurance Corporation, which protects the stability of the financial system, took over Silicon Valley Bank on Friday in an effort to protect depositors.
Since the bank is FDIC-insured, depositors are guaranteed protection of up to $250,000 in funds for each different type of account held.
The group of depositors in Silicon Valley Bank is made up of a relatively small set of venture capital firms, startups, and other large investors, many of whom held deposits that far exceeded $250,000. In turn, those depositors risked losing a portion of or all of their money that exceeded that threshold.
"Everybody panicked," Admati said. "They were anxious all weekend long about whether they could make payroll and pull money out because it's stuck there."
In response to the outcry and fearing the wider spread of the crisis, the FDIC, the Treasury Department, and the Fed took further action on Sunday, telling depositors in Silicon Valley Bank and Signature Bank that the FDIC would protect all of their funds, including those that exceed the $250,000 limit.
Later on Sunday, the Fed announced an emergency lending program to cover the deposits at issue and restore wider confidence in the financial system.
Under the program, the Federal Reserve will allow distressed banks to borrow funds on favorable terms directly from the Fed, instead of generating cash by selling underwater securities, as Silicon Valley Bank had done. Those funds will equip banks to pay depositors who may want to quickly pull out funds amid the turmoil.
Now, the banks can use distressed securities as collateral to borrow from the emergency lending program as if the securities had retained their full value, allowing the banks to raise cash and ensuring the Fed will take on much of the risk tied to the banks' declining assets.
Returning to the analogy of a home mortgage in a declining housing market, Admati said the program resembles a homeowner getting a loan against their mortgage as if conditions had remained as strong as they were when the house was purchased rather than taking into account the new, worse market.
"They're lending to the bank more than the assets are worth," Admati said.
The federal agencies behind the emergency response refuted notions that the moves amount to a taxpayer bailout. "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer," said the official statement from Treasury, the Fed, and the FDIC.
Prominent critics have asserted instead that the government response should be considered a bailout, including the editorial board at The Wall Street Journal.
Has the Silicon Valley Bank collapse triggered a banking crisis?
The collapse of Silicon Valley Bank and Signature Bank has prompted fears of a wider contagion throughout the financial industry.
However, the spread of financial distress remains limited, in part because Silicon Valley Bank served a narrow swathe of the economy concentrated in startup tech firms, some experts told ABC News. Other experts cautioned that the situation continues to be in flux and could escalate significantly.
Chittenden, who downplayed the risk of a wider financial crisis, said Silicon Valley Bank serves a niche market set apart from the economy as a whole.
"It really is relatively isolated," he said. "It doesn't have all those interchangeable relationships."
"It's not a systemic problem that lots and lots of banks are going to be facing," he added.
Darrell Duffie, a professor at Stanford's Graduate School of Business, echoed the sentiment, citing the relatively small size of the failed banks compared to the largest in the sector.
"At this point, it doesn't look like a broad spread crisis," Duffie said. "The affected banks have taken more risks than most others and they are not among the very biggest banks, which are more heavily regulated and have a lot more small depositors."
Admati disagreed, saying recent events should be considered a financial crisis and the outcome remains uncertain.
In rescuing depositors in Silicon Valley Bank, federal agencies invoked the "systemic risk exception," a stipulation that allows the government to intervene on behalf of depositors.
"It's certainly a crisis because the bank wasn't considered systemic and all of a sudden it is considered systemic," Admati said. "They themselves defined it as bigger than just one failed bank."
"These things are very hard to predict," she added, noting that the outcome depends in part on the emotional response and behavior of depositors, which stands apart from the underlying financial damage.
What does the current banking emergency mean for you?
The vast majority of banking customers hold deposits below the FDIC insurance threshold of $250,000, ensuring the protection of funds, regardless of a potential bank collapse, Lynyak said.
The recent bank collapses offer an important reminder that customers should scrutinize the banks that hold their money.
"People should probably be careful about looking at the capital levels and the business plan of their particular bank," Lynyak said. "Some small inquiry is always very useful."
As depositors big and small monitor a financial emergency, their assessment ultimately determines the outcome for the wider economy, he added.
"As long as the public believes their deposits are safe, our system is safe," Lynyak said.
In 2016, Vice President Joe Biden warned against efforts to unravel banking regulations that Democrats had fought to implement following the nation’s financial crisis, just as the emerging Trump administration was determined to loosen those strict banking rules.
Biden argued that without the far-reaching 2010 banking overhaul known as Dodd-Frank, financial institutions would continue to gamble with consumers’ cash and ultimately hurt the middle class.
“We can’t go back to the days when financial companies take massive risks with the knowledge that a taxpayer bailout is around the corner when they fail,” Biden said in a speech at Georgetown University in the waning days of the Obama administration.
Now there’s a banking crisis on his watch as president, and Biden is moving aggressively to assure the public that it is contained, bank executives will be fired, deposits are safe and taxpayers aren’t on the hook — measures also designed to calm jittery financial markets.
As he contemplates an announcement for a second term, Biden’s ability to avert a contagion among financial institutions will test his contention that his administration represents competence and stability in contrast to the chaos of the Donald Trump years.
His call for additional regulation, though, is likely to run into stiff resistance in the Republican-controlled House and even among some moderate Democratic lawmakers who joined Republicans to loosen some rules in a 2018 law — not to mention criticism from the still-forming 2024 Republican field that has already labeled his actions a bailout by just another name.
Privately, Biden has been adamant that the government’s intervention would not be like that of 2008 when Congress authorized billions in taxpayer cash to rescue financial institutions that were deemed too big to fail. That’s according to a senior White House official, who was not authorized to describe private discussion by name.
But administration officials believe that this time they had to act substantively despite bad decision-making by bank executives, given the economic risks and the potential impact on customers who did nothing wrong.
Unlike in 2008, Biden was insistent that bank executives had to pay a price, said the official, granted anonymity to discuss internal White House deliberations.
“The management of these banks will be fired,” Biden declared Monday. If an institution is taken over by the Federal Deposit Insurance Corp., “the people running the bank should not work there anymore.”
On Monday, Biden also stressed that taxpayers will not bear the cost of his administration’s penalties on the two failed banks, instead tapping into an insurance fund that is paid for by bank fees. And while customers and small businesses who stashed their money with the penalized banks would be protected, Biden emphasized that investors would not.
“They knowingly took a risk and when the risk didn’t pay off, investors lose their money,” Biden said. “That’s how capitalism works.”
California Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, said that Biden, like others, cannot ignore the lessons of the 2008 financial collapse and that having endured it firsthand, the president was well aware of the stakes. In conversations over the weekend, the White House assured her he was on top of it.
“I think that his main concern was how to, No. 1, take care of the depositors and avoid contagion so that we would not basically, seriously, disrupt the banking system in this country,” Waters said.
Regulators put Silicon Valley Bank under FDIC control on Friday afternoon after panicked depositors rushed to withdraw all their funds within a matter of hours. That’s a bank run. Top administration officials including Treasury Secretary Janet Yellen stressed that they were monitoring the situation, as reports of companies struggling to figure out how to manage their finances amid the two banks’ shutdown rippled throughout the media and threatened regional banks around the country.
By Sunday night, Treasury, the Federal Reserve, and the FDIC announced that all Silicon Valley Bank clients would be able to access their money, as would depositors from Signature Bank in New York, which similarly failed and would be taken over by the state regulators. As administration officials were working behind the scenes, Biden was regularly briefed by his chief of staff, Jeff Zients, National Economic Council director Lael Brainard and Yellen throughout the weekend, according to the White House.
Biden also spoke with outside economists, although the White House declined to identify them.
Administration officials also worked to brief lawmakers over the weekend, although several Republicans were left off a call for senators with Treasury and FDIC officials on Sunday night. After Republicans protested publicly, and Senate Majority Leader Chuck Schumer, D-N.Y., pointed out to Treasury that GOP senators were excluded, the administration quickly convened a separate briefing for Senate Republicans on Monday afternoon.
There, several GOP senators conveyed their concerns to administration officials that Silicon Valley executives were being rescued in a way that could ultimately harm community banks in their home states, according to a person with knowledge of the call who was granted anonymity to discuss a private conversation. That would be because these banks would be assessed new fees to replenish the insurance fund that the administration tapped to aid the two failed banks’ depositors.
Indeed, the political specter of the word “bailout” will linger over the White House for some time.
Republicans angling for the 2024 presidential nomination are already arguing that customers will ultimately bear the costs of the government’s actions even if taxpayer funds weren’t directly used. Some economists believe more fees levied on banks will just get passed onto consumers, such as increased rates for loans.
“Joe Biden is pretending this isn’t a bailout. It is,” former South Carolina Gov. Nikki Haley said, arguing that depositors at other banks now are “forced to subsidize Silicon Valley Bank’s mismanagement” and that bank customer will ultimately be responsible for the costs if the insurance fund is drained.
Sen. Tim Scott, R-S.C., the top Republican on the Senate Banking Committee who is eyeing a presidential bid, also criticized what he called a “culture of government intervention,” arguing that it incentivizes banks to continue risky behavior if they know federal agencies will ultimately rescue them.
White House and other administration officials are insisting their actions are not a bailout. But Harvard University economist Kenneth Rogoff said while he agrees that the government is rightly protecting the two banks’ depositors, the money spent to make them whole is “certainly a bailout.”
“The government swore after the financial crisis it was not going to bail out uninsured depositors and it was not going to bail out money funds,” Rogoff said. “It basically, as I understand it, is guaranteeing everything. So that’s certainly a bailout.”
The tech community is still reeling from the abrupt collapse of Silicon Valley Bank, the industry’s one-time financial engine, which flamed out Friday in the second-largest bank failure in U.S. history.
Small businesses and startups with deposits at SVB will soon have access to all their money, regulators have said, following emergency measures to cover any funds beyond the federally promised $250,000 per depositor limit.
But business owner Vanessa Pham said that as of Monday afternoon, she was still waiting to get access to cash locked up at the bank.
“It’s very demoralizing to think about because when these kinds of shifts and collapses happen at massive institutions, it’s often the small guys like us that feel it the hardest,” said Pham, a co-founder of Omsom, an Asian food products company based in New York.
For business owners who made up the foundation of SVB’s business, recent days have forced a series of on-the-fly moves to keep the lights on — and raised new questions about companies’ banking decisions that few entrepreneurs ever thought they’d have to consider.
Although it was known for serving larger tech companies like the e-commerce platform Shopify and the software firm CrowdStrike, SVB carved out a niche among small and early-stage businesses. As a number of garage projects in Silicon Valley blossomed into multibillion-dollar goliaths, SVB entrenched itself as Silicon Valley’s favorite business banker.
But the tech sector hit a wall last year as rising interest rates and concerns over a slowing economy led many of the industry’s giants to unwind much of their pandemic-era hiring. So when federal regulators shut down Silicon Valley Bank — the country’s 16th biggest lender — on Friday, some of its clients had few immediate lifelines at their disposal.
Camp, a retail and entertainment startup geared toward families, turned to its customers for help.
The 200-person company, which operates physical locations resembling old-school general stores that also include black box theater spaces, rolled out a sweeping discount offer to pull in cash, founder and CEO Ben Kaufman said.
That was Plan B, however.
Plan A, Kaufman said, was a scramble late last week “to wire the money out of Silicon Valley Bank and into Chase Bank,” where the company had a small account, but “we saw that our wire never got out on Thursday.”
So Camp pivoted, launching a 40% off promotion — checkout code: “BANKRUN” — asking customers to buy “probably more than they need to right now” to help prop up the company’s cash flow, said Kaufman, who estimated that 85% of Camp’s money was tied up at SVB.
“We were panicked,” he said Monday. “We didn’t know how we were going to make ends meet in the coming weeks. And luckily, we turned to our customers, and they came out in droves. It’s been really overwhelming to see.”
Slumberkins, a Vancouver, Washington-based toy company, had a similar idea when it found itself in the same predicament.
Co-founders Callie Christensen and Kelly Oriard were on a plane leaving a New York toy conference when they realized their attempt to wire the contents of their SVB account into a new one had failed.
“We landed in Portland, and we kind of were in this moment of ‘Oh, wow, I don’t know if we’ll be able to make payroll in two weeks,’” Christensen said of the company’s 30 employees.
Slumberkins turned to its fan base of parents and educators on social media, telling its 281,000 Instagram followers Friday that it had been swept up in the bank fallout — and, much like Camp, was discounting its entire site by 40%.
Within 24 hours, the founders said, they had generated enough of a cushion to slow the revenue free-fall. The site had been visited more than 170,000 times, 10 times its traffic when they appeared on ABC’s “Shark Tank” in 2017, they said.
As of Monday afternoon, however, they were still unable to access their money.
“We’re still in that limbo,” Christensen said.
Not all of Silicon Valley Bank’s customers were tech companies and startups.
In 2021, SVB bought Boston Private Bank and Trust, where the Children’s Medical Office of North Andover, in Massachusetts, had banked for around a decade, said Dr. Daniel Summers, a pediatrician who is the practice’s financial director. At first, Summer said, he didn’t think much of the purchase.
But getting frozen out of hundreds of thousands of dollars for the last few days — he regained access late Monday morning — was sobering, Summers said.
“I’ve gotten pretty good at knowing how to run the finances of a small business,” he said, “but that’s nothing at all like paying attention to the banking industry as a whole or tech finance. I don’t spend my time following that.
“Going forward, if I’m choosing a different bank, I’m actually going to ask about their portfolio,” Summers said. “That’s now a question that I will have on my radar.”
Kaufman of Camp also said the SVB failure was an unwelcome crash course in a sector he didn’t think he’d need to actively worry about.
“Camp was, like many startups, in the process of raising equity capital, and with the equity markets now even more disturbed by a potentially looming banking collapse, that’s a concerning thing for companies like ours,” he said.
The other lesson, Kaufman said, is that while “venture capital, in general, is important if you’re going to do ambitious things ... customers are the best source of long-term capital.”
Some tech insiders said they remain relatively unfazed by the meltdown.
“In the coming days I think it will be shown that the banks, or banking in general, is OK right now,” he said.
As SVB was falling apart Friday, Matt Gunnin, the founder and CEO of the esports data and analytics provider Esports One, said he didn’t want to yank his company’s money. Even after he learned that federal regulators had closed SBV, with no guarantee that he’d get all his money back, Gunnin said it had been the best bank he’d ever worked with.
“There wouldn’t be this many startups in tech if it wasn’t for a bank like SVB, in my opinion,” Gunnin said. He praised the federal intervention, saying, “The adverse effects this would have had across the country would have been so catastrophic that it was unfathomable that startups wouldn’t be made whole.”
Nonetheless, when he was reached again Monday Gunnin said he’d decided to move his money out — joining the recent markets-rattling trend of depositors’ retreating from midsize and regional banks.
Soon after he regained access to his SVB funds, he began the process of shifting Esports One’s funds into an account at Chase.