The Epicenter of Startups – SVB

Thursday, March 9, 2023, the Silicon Valley Bank (SVB) earthquake started rattling our economic world. We all reflected on the events of the great financial crisis in 2008, the collapse of WAMU, Lehman Brothers, and AIG.

My phone rang continuously Friday and Saturday. I received calls from several large brokerage company CEOs. I reached out to several industry influencers I am friendly with. We were all collaborating and sharing feedback from different listening posts, including real estate professionals counseling their clients and clients sharing perspectives with our professionals.

Everyone in search of clarity and even comfort for what will happen today.

I reached out to economists John Burns and Selma Hepp, my two smartest friends. I listened to podcasts and read every article I could.

It was very clear that the shareholders and debt holders at Silicon Valley Bank would be wiped-out to zero. What would happen to deposits of more than $250,000? What would happen to other regional or small banks?

By the end of Saturday, my comfort came down to one statement made to me by John Burns. 

“In recent history, are you aware of significant losses of deposits at any FDIC insured bank?” 

My answer was “No.” John responded, “Trust me if it had happened it would have been in all the headlines.”

It was this conversation that gave me comfort. While I felt for the employees and shareholders at Silicon Valley Bank, it was the depositors of most concern — the start-ups focusing on this week’s payrolls, the dreams of the entrepreneurs on the verge of greatness.

By Sunday evening at 5:30 PM PT, the FDIC and Federal Reserve had issued their joint statement providing for the liquidity of the SVB deposits, a total of $150 billion.

CNBC.com reported “the FDIC will use funds from Deposit Insurance Fund (DIF) to meet the needs of depositors. The DIF is funded by quarterly fees assessed on FDIC-insured financial institutions, as well as interest on funds invested in government bonds. The DIF currently has over $100 billion in it which is “more than fully sufficient” to cover SVB depositors.”

Shortly thereafter, First Republic announced additional liquidity of up to $70 billion.

It will be a very interesting few weeks in the equity markets, real estate markets, and at your kitchen table discussing all of this over morning coffee. Will the real estate market pause again? Accelerate? Deliver a robust spring season?

How will the Federal Reserve act in their meetings of March 21 to 23? 

CNBC.com further reports at 12:14 AM ET this morning, “In light of the stress in the banking system, we no longer expect the FOMC to deliver a rate hike at its next meeting on March 22,” Goldman economist Jan Hatzius said in a Sunday note.

Plenty of unanswered questions; however, it seems, the integrity of our banking system for the consumer [depositor] is a huge priority and sound – for now!

This is Where We Are Now.

Thanks!
Mark