The weekend was a bad one for the Silicon Valley

Before the Bell: The Impact of Silicon Valley Bank on the Startup World and the Banking System, according to Al Aharonov-Thomas

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Silicon Valley Bank had an impact on the startup world and the banking system as well as a large effect on the tech sector and banking system this month.

Roughly half of US technology and life science firms were banking with SVB at the time it collapsed. In total, it was the bank for about 2,500 venture firms including Andreessen Horowitz, Sequoia Capital, Bain Capital and Insight Partners.

The influence of the company was more than just lending and banking as former CEO Gregory Becker sat on the boards of numerous tech advocacy groups in the Bay Area. He was a director of the Federal Reserve Bank of San Francisco, a member of the Digital Economy Board of Advisors of the US Department of Commerce and chaired the TechNet trade association.

To find out, Before the Bell spoke with Ahmad Thomas, president and CEO of the Silicon Valley Leadership Group. Amazon, Bank of America, Microsoft, Meta and hundreds of other companies are members of the influential advocacy group that is working to convene them to discuss what will happen next.

Premarket Stocks Trading: The Case for a Stable U.S.-based Credit Suisse Company and the First Republic of the United States

I believe the actions taken by the politicians in Washington have helped calm some of the unease that had been there, but looking at Credit Suisse and First Republic over the past couple days, we are in a situation that could very well be life threatening.

I think people need to take a step back, let cooler heads prevail, and understand there are opportunities from an investment standpoint, community engagement standpoint and corporate citizenship standpoint for new leaders in Silicon Valley to step up.

It’s far too early for that. We will always be at the table for discussions about enhancing access to capital to entrepreneurs of color and if there are opportunities to try and drive innovation and economic growth.

There is a crisis of confidence and economic conditions on the ground. The economic conditions have many causes, including a weak economy, inflationary pressures and an interest rate environment. We have to focus on stabilizing confidence in the investor community, business executive community, and stakeholders around the strength of the innovation economy. That is something we need to fix.

After the failure of two American banks earlier this month, Switzerland’s biggest bank, U.S.-based UBS, has agreed to buy competitor Credit Suisse in an emergency rescue deal.

Shareholders will not have to approve the deal after Swiss government agreed to change the law to remove any uncertainty.

Source: https://www.cnn.com/2023/03/20/investing/premarket-stocks-trading/index.html

The Signature Bank-Factory Run Against Credit Suisse and Signature Bank: When Banks First Shut Down, Customers Aren’t Sorry

Credit Suisse had been losing the trust of investors and customers for years. Its worst loss since the global financial crisis occurred in 2022, it was recorded by that year. But confidence collapsed last week after it acknowledged “material weakness” in its bookkeeping and as the demise of Silicon Valley Bank and Signature Bank spread fear about weaker institutions at a time when soaring interest rates have undermined the value of some financial assets.

On Monday, Signature Bank’s 40 branches will begin operating as Flagstar Bank. Signature customers won’t need to make any changes to do their banking Monday.

Not included in the transaction is about $60 billion in other assets, which will remain in the FDIC’s receivership. It also doesn’t include $4 billion in deposits from Signature’s digital bank business.

At the end of last year, Signature had more than $110 billion worth of assets, including $88.6 billion of deposits, showing how the run against the bank two weeks ago led to a massive decline in deposits.

Wheeler replied with a question mark. He should have sent his company’s 40 million dollars in paychecks to 46,000 US workers via Silicon Valley Bank during the night. The banker sent back a screengrab of a stock chart showing that SVB’s shares had fallen nearly 90 percent while Wheeler was at sea. Almost nothing of the crisis was unfolding back on land when Wheeler was stuck on a ship.

The money was held back for now. But she was still concerned. “I was really afraid that we lost everything except the bare minimum,” she says, referring to the $250,000 per account guaranteed under the US Federal Deposit Insurance Corporation, or FDIC. That covers just two months of payroll. You have a lot of investors text you and they’re like, ‘What’s your plan?’ What is your plan? You are like, “I don’t know.” I can’t really have a plan.’”

The question is whether banks will get conservative and reduce the amount of loans they issue. They might decide this because of general belt-tightening in an uncertain economy – or if they face tougher regulations in the fallout of recent bank failures.

People who control budgets of families and businesses are influential. Will employers get leery about hiring new workers? Will shoppers be cool with their travel plans? These are expenditures that make up most of the U.S. economy and a big scale back would hurt.

And what happens to the banking system? Experts point to a handful of regional banks that took similar risks to the failed lenders and could be in danger. The Federal Reserve is offering funding to help shore up banks’ cash reserves and avoid another damaging bank run. But the Fed is also expected to raise interest rates in its long-term quest to fight inflation.

On Wednesday the Fed will make a decision about which path to follow, raising interest rates again or pausing for a break from inflation.

Understanding the Financial Crisis: The Lost Legacy of the Collapse of Signature Bank and FDIC’s SVB and SVB’s Insurance Fund

Here’s the context. To prevent wider panic, the Federal Deposit Insurance Corp. broke with normal policy to guarantee that all customers could get their money back from the collapsed SVB and Signature Bank. It was remarkable that nearly all of Signature’s and SVB’s deposits exceeded the $250,000 cap for FDIC insurance.

That insurance money came from a fund pooled through quarterly fees from FDIC-insured banks. With billions of this rainy-day fund now spent, how will it get replenished?

Power can be derived from feelings and perception. And the government’s swift financial rescue may create the unintended perception that in an emergency, customers at big-enough banks will get bailed out no matter what – whether their deposits are insured or not.

It is possible that bankers who manage uninsured accounts above the $250,000 cap will take greater risks, or that the people who own those accounts may scrutinize their bankers’ decisions less.

Another worry is a potential exodus from smaller, regional banks to bigger ones — based on that perception of less risk (even though there’s no indication that small banks are in trouble).

Rob Chess, chairman of the company, said it removes a capital source for many companies, and that some may end up failing.