As you may already know, Silicon Valley Bank (SVB) has failed.
We banked with SVB ourselves and with its collapse we are painfully aware of the effects this will have on people, our businesses, and the ecosystem we’re all a part of. We are feeling the impact. We wanted to let you know that our team is here to continue to support our clients. You can connect with us to help sort out potential updates to sam.gov registration, invoice payments from the government, and navigate other issues that may arise.
The Outpost is an extension of your team and we are in the trenches with you. We will get through this together and come out stronger on the other side.
We hope these FAQs are a helpful starting point, and we will provide updates as they come.
Why is the Financial Market Under Pressure?
During a speech on March 6th, Martin Gruenberg, the Chair of the Federal Deposit Insurance Corporation, drew attention to the banking industry’s new interest rate risks. According to Gruenberg, the unrealized losses on available-for-sale and held-to-maturity securities reached $620 billion at the end of 2022 across all U.S. banks. There are concerns that the banking industry’s capital could be reduced by as much as 28% due to interest rate increases by the end of 2022. While large banks do not have immediate liquidity challenges, small and regional banks may experience more acute impacts from this reduction in capital.
– CNN Business, Silicon Valley Bank collapses after failing to raise capital
What triggered the Silicon Valley Bank failure?
SVB has faced difficulties due to venture-capital firms being less willing to fund start-ups amidst the current volatile economic environment. This is a problem for SVB because it receives deposits from VC-backed start-ups that previously had a lot of money. SVB’s client funds decreased from $341 billion at the end of last year to $326 billion as of Feb. 28. This decrease in deposits led SVB to take drastic action. After the market closed on Wednesday, SVB announced that it had sold its entire $21 billion portfolio of securities classified as available for sale (AFS), which mainly consisted of U.S. Treasury and mortgage-backed securities. As a result, SVB recorded an after-tax loss of $1.8 billion in the first quarter of 2023.
How does this affect the overall Silicon Valley and Innovative Tech market in the U.S.?
The impact of SVB’s failure is expected to be significant and widespread. SVB is the banking partner for 50% of US venture-backed tech and life sciences companies and plays a significant role in providing credit lines to the $10 trillion private capital industry.
How much does this affect dual-use (Defense-) related tech companies and investors?
The full extent of the consequences of SVB’s failure for dual-use (Defense-) related tech companies and investors remains unclear. Companies with deposits at SVB will be particularly affected by the situation. Initially, there will be a loss of access to all funds at SVB until the FDIC makes insured funds available through the Deposit Insurance National Bank of Santa Clara on Monday, March 13th, 2022. Accounts with more than $250,000 will receive an advance dividend and a receivership certificate for the remaining funds. As the FDIC sells the assets of SVB, uninsured depositors may receive future dividend payments.
What’s the best way a small business can manage this transition, apply for a temporary loan, and maintain payroll for our employees?
For companies with over $250,000 in accounts at SVB, it is recommended that they contact the FDIC at their toll-free number 1-866-799-0959. Since it is unclear how much of the deposits greater than $250,000 will be recovered, impacted companies should take immediate steps to reduce capital expenditures in the short term to safeguard their available cash reserves. As much as possible, long-term decisions related to the consequences of SVB’s failure should be postponed until further guidance is provided by the FDIC in the coming days.
In case of a shortfall, companies may be able to access short-term funding through loans or other financial services available through alternative banks. However, such decisions should be made cautiously to avoid additional financial strain if uninsured funds cannot be retrieved through the sale of SVB’s assets. Furthermore, any revenue that would have gone to an SVB account should be redirected to a new account at a different bank.
What should a company do if they don’t bank at SVB, but are worried about the risk of contagion within the banking industry?
If companies that are not customers of SVB are apprehensive about the potential for contagion within the banking industry, they may want to consider reducing their total deposits at a single financial institution to an amount lower than the FDIC-insured limit of $250,000. Furthermore, companies may want to contemplate converting cash exceeding the $250,000 threshold into federally-secured assets such as Treasury Notes or Federal Bonds to safeguard their capital in the short term.