Mike Wheeler: Before the Bell: What Happens If a Silicon Valley Bank Collapses? Ahmad Thomas: A Voice from the Silicon Valley Leadership Group

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Mike Wheeler, president and chief legal officer of payroll startup Patriot Software, was on a five day cruise in celebration of his brother’s wedding. He got a message from a representative of his former bank when he stepped up in Key West that morning, saying that he should move money out of Silicon Valley.

The cruise ship was still in Key West when Wheeler brought his family to a butterfly conservatory to look at butterflies with his colleagues. They tried resending payroll transfers that didn’t work. A government press release was issued at 11:56 Eastern and was given to SVB by the government. The worst-case scenario of a bank collapsing had come true and it was the news that the person in the war room wanted to relay.

Ahmad Thomas: Silicon Valley Bank has been a key part of our fabric here for four decades. The community and the innovation economy relied on the services of SVB. The need to fill the void that was created by the absence of SVB is a lot of work for a person like me.

To find out, Before the Bell spoke with Ahmad Thomas, president and CEO of the Silicon Valley Leadership Group. The influential advocacy group is trying to have hundreds of companies come together to discuss what happens next.

Premarket Stocks Trading: Credit Suisse’s Takeover and the Impact of the Swiss National Bank on the Economic and Community Engagement Regime – The Case of UBS

It was a fairly high level of uneasiness a few days ago, and I believe the swift steps taken by leaders in Washington have helped soothe that unease, but now we are in a situation because of Credit Suisse and First Republic.

This is a moment where I think people need to take a step back, let cooler heads prevail, and understand that there are opportunities both from an investment standpoint, a 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 be at the table for the conversations if there are opportunities for us to try to drive innovation and economic growth in a way that is beneficial to the community.

The problem is twofold: A crisis of confidence and the set of economic conditions on the ground. The economic conditions remain volatile for a variety of reasons: The softening economy, inflationary pressures and the interest rate environment. We need to focus on stabilizing the investor community, business executive community, and broader group of stakeholders that are around the strength of the innovation economy right now. That is something that we need to shore up.

“UBS today announced the takeover of Credit Suisse,” the Swiss National Bank said in a statement. It said the rescue would “secure financial stability and protect the Swiss economy.”

In order to remove uncertainty regarding the deal, the Swiss government agreed to change the law.

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

What’s your plan for? After the SVB, Signature Bank, they realized they had no deposit. The rest is yours to take care of… until the bank runs

The trust in Credit Suisse among customers and investors had been eroded for years. Its loss was the worst since the global financial crisis. Last week it acknowledged that it had a weakness in its books, as the demise of Silicon Valley Bank and Signature Bank made investors jittery with soaring interest rates.

After Signature Bank failed, most of its deposits were sold to a subsidiary of New York community bank, according to the Federal Deposit Insurance Corporation.

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.

As Wheeler caught up with the news in Key West, he learned that SVB’s troubles affected not just Patriot, based in Canton, Ohio, but also the roughly 57,000 organizations for which it calculates and disburses wages and payroll taxes. In the days before the workers get their funds, they are held in abeyance by the SVB. As he began looking through delayed text messages, Wheeler realized that the chaos at SVB had broken the system. No one had been paid—not even Patriot’s own staff.

For now, she held back on moving money. But she was still worried. “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. It would only cover two months of payroll. As a founder, you often get text messages from investors asking “What’s your plan?” Tell me what your plan is. You’re like, I don’t know. I can’t really have a plan.’”

The question is whether banks can get more conservative by reducing the number 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 hold sway, too. Will employers get leery about hiring new workers? Will shoppers cool their travel plans or delay big purchases? The expenditures are crucial to the US economy and a large scale back would hurt it.

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 some money to help banks with cash reserves and avoid another bank run. But the Fed is also expected to raise interest rates in its long-term quest to fight inflation.

On Wednesday, the Federal Reserve will either raise interest rates again or stop them for a while in order to give the banking system a break.

The FDIC Insurance Money Crisis: Why a Bank’s Deposits are Uninsured, and Why Many Banks are Lending Their Money?

This is 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. The call was remarkable because over 90% of SVB’s and nearly 90% of Signature’s deposits exceeded the $250,000 cap for FDIC insurance.

The insurance money came from the fund that was pooled by the banks. With billions spent on this rainy-day fund, how will it be replaced?

Powerful drivers can be emotions and perception. The government’s swift financial rescue may lead to the perception that customers at larger banks will be treated better in an emergency if their deposits are not insured.

The people who own accounts with uninsured balances above the $250,000 cap may start looking into their bankers’ actions less, since they could be taking greater risks.

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 a company, told KqED’s Lesley McClurg that it may mean that some companies will end up failing.