After a run on SVB, an institution where a great many venture capitalists and startups stored their cash, the bank was taken over by the U.S. government after depositors raced to get their capital from the institution.
Concerns that thousands of startups and other companies would be unable to make payroll and cover other expenses this week led to calls for depositors at SVB to be made whole.
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There’s nuance to the call. While the Federal Deposit Insurance Corporation offers coverage up to $250,000 for business and personal accounts (think checking and savings accounts, not stocks, crypto and the like), there’s also a history of depositors being made whole during crises of this nature.
By the middle of the weekend, sentiment had coalesced around two positions: One side noted depositors needed to be made whole, fast, to allow SVB-banked companies to make payroll and prevent larger contagion. The other posited that SVB customers deserved to suffer because they concentrated their banking in a smaller institution and then yanked their cash in a panicked rush when the bank teetered.
There’s some mental scarring in the United States regarding government involvement in banking fiascoes. Not everyone is content when they look back at how the 2008 crisis went down, how money was spent, and how legal and financial liability was ultimately handled.
This explains why some folks — myself included — had a knee-jerk reaction opposing the use of government resources to resolve the situation. For what it’s worth, I wound up swapping my views when it became clear that it would be regular folks who would get crushed the hardest if SVB deposits remained locked up for an extended period of time.
As the SVB dust begins to settle, what’s ahead for startups, VCs, and the banking industry? by Alex Wilhelm originally published on TechCrunch
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Photo and Author: Alex Wilhelm