austin “It feels like everyone is dancing on the Titanic as it sinks,” said founder Jessica Quillin, summing up the atmosphere at the South by South West (SXSW) technology festival. The festival began on Friday, and the Silicon Valley Bank (SVB) collapsed at the same time.
A number of participants from the technology scene were surprised by the bankruptcy when their credit cards suddenly stopped working. Others were concerned that they would no longer be able to pay their suppliers on Monday. the investor rule Ventures canceled all events planned for SXSW at short notice with reference to the SVB crisis. 300,000 participants were expected for the festival, which ran until March 19.
The top politician of the Democrats, Nancy Pelosi, tried to address the concerns at a discussion on Sunday. The government is trying to defuse the situation, she said. “A lot of the small businesses have accounts in this bank, they have money there so they can pay wages,” Pelosi explained, “so if this bank goes down, we’re worried about the wages of the workers in these companies .”
relief in the evening
Relief came in the early evening local time: the US authorities announced that on Monday all customers would have access to their entire credit balance. It was a surprising breakthrough. At first there was talk that customers could only access 30 to 50 percent of their credit again. In fact, deposits in the US are only insured up to a limit of $250,000.
>> All about it: Full compensation for SVB customers: US authorities announce support package and close more banks
However, Treasury Secretary Janet Yellen and other regulators wanted to prevent the markets from panicking on Monday and pulling customers away from other smaller banks on a large scale. Therefore, a decision was made to take “determined steps to strengthen public confidence in our banking system,” it said in a statement. In the same move, US regulators closed another bank. New York’s Signature Bank will not open on Monday, the statement said. All deposits are safe and customers will get their funds back in full.
“The problem is the integration of the Silicon Valley bank with the economy of the valley”
Analyst Kyle Stanford from the Pitchbook platform said about the SVB bankruptcy: “The problem is the interdependence of Silicon Valley Bank with the economy of the valley.” have no access to their deposits to pay their wages.” Another problem is that many start-ups are operating in a difficult market environment. “A lot of companies are struggling. You need cash to operate and grow. And now is not the time to go back to the capital market to raise new funds. The market situation is difficult.”
The failure of the bank was “a big surprise” for all market observers. “Everyone was trying to prioritize and protect their cash,” Stanford said. It’s easy to blame Peter Thiel, for example, whose Founders Fund called on their own companies to withdraw their money from Silicon Valley Bank. But: “Peter Thiel is a prominent name, but many actors were responsible,” said the analyst. “Within ten hours, 42 billion dollars were to be withdrawn on Thursday, nobody expected that.”
>> Read also: Interview with Peter Thiel: “Google is completely in panic mode”
In the end, it wasn’t a single person that caused the outage, but a combination of factors that led to a “downward spiral,” according to Stanford. One factor was the bankruptcy of the crypto bank Silvergate, another the sale of government bonds by the Silicon Valley Bank. “And the head of the bank was not happy either when he publicly declared on Twitter that everything was under control. That increased the panic.”
Risk management in focus
The possible mistakes of bank management – as well as the “faithfulness” of long-time SVB clients from the venture capital sector – were widely discussed in Austin. “Banks have to protect themselves against two risks in particular,” a top manager at one of the largest US finance houses told Handelsblatt: liquidity and interest rate risks. “Both materialized at Silicon Valley Bank, at breakneck speed, and without any reasonable safeguards.” Apparently, the bank’s risk management had failed, he judged.
It is important for founders and bank managers to understand that “the flow of information is moving much faster than before,” said the manager. “Nowadays, both correct and fake news spread extremely quickly,” for example in chat groups or on social media. With corresponding consequences.
On the big SXSW stage, the SVB bankruptcy was often left out – “business as usual”, one might think. But in many conversations, the SVB case was the dominant topic. “Is Silicon Valley the start of a new financial crisis, or is it an isolated case,” asked Jason Schenker, chairman of the Futurist Institute. To give the answer yourself: “Even if it’s an isolated case, there is never just one source of the fire.” ‘ said Schenker.
>> Read for background: Silicon Valley Bank: How dangerous will the end of the institute be for the financial system?
Has the bank management made a fundamental error in parking a large part of its investments in long-dated government bonds? “Of course it was a mistake,” Stanford believes. “But you also have to consider how quickly the interest rate environment has changed. Within a year it went from almost zero to five percent. Nothing like this has existed before. The environment was changing very quickly and the bank was not able to rebalance its portfolio quickly enough.”
How things will continue was still completely open until the early evening. Basically, the bank was very important for the Valley. “She took care of start-ups and the questions of the founders, about a business that was too risky for the big banks. Now there’s a gap in the market,” Stanford said.
More: All current developments on the SVB-Bank in the live blog.