Police responded to Silicon Valley Bank’s (SVB) New York offices on Friday as panicked clients demanded their money amid the institution’s shocking implosion.
The Federal Deposit Insurance Corporation (FDIC) seized SVB’s $209 billion in assets just a few hours later, ordering the bank closed and taking control of its $175.4 billion in deposits. The massive meltdown marks the biggest bank failure since the 2008 financial crisis.
SVB, the 16th-largest bank in the country, has been “one of the startup industry’s most important banks,” according to Fortune. But after Peter Thiel’s Founders Fund on Thursday raised questions about SVB’s financial health, recommending that its clients withdraw their funds from the bank, and, in a now-deleted tweet, investor Michael Burry compared SVB to Enron, SVB’s stock immediately tanked, cleaving some $80 billion from its market cap in a matter of hours. While hedge fund king Bill Ackman recommended the federal government bail out SVB if they couldn’t raise enough private money to stay afloat, SVB CEO Greg Becker implored customers to “stay calm,” Bloomberg reported.
Dor Levi, a former Lyft exec now running his own startup, was at SVB’s Park Avenue South outpost on Friday, alongside numerous other company owners trying to access their funds—or at least get some answers from the bank officials holed up inside.
“It’s just frustrating,” Levi told The Daily Beast, explaining that he had “most of” his firm’s money with SVB because it was “the safe choice.” Now, no one at the collapsing bank will return his calls or respond to his emails, Levi said.
At a crossroads, Levi went to try his luck in person.
“Everyone came there because our bankers told us to go there,” he continued, explaining that he had been told by an SVB representative that the New York location would cut him a cashier’s check. “And we just had some questions. No one from the bank came out, they just told the security guards, ‘Don’t let them up to the second floor.’”
Yet, said Levi, “If you want a bank run, this is the best, friendly bunch you could ever desire.”
The handful of startup founders outside, desperately working their phones, posed no threat whatsoever. But one SVB client wanted to wait inside the lobby, instead of on the sidewalk. This prompted a call by building management to the NYPD, according to Levi. Two cops showed up shortly after 9 a.m., calmly discussed the situation with those involved, and the man left without further incident, said Levi (who also departed shortly thereafter).
An NYPD spokeswoman told The Daily Beast that cops were called but that no arrests were made and no incident report was filed at that location.
Levi said he “was always worried about something like this,” and maintained accounts at SVB and another bank, as well as some crypto and stablecoin investments, to hedge against a collapse. However, in an ironic twist, Levi was “always more worried about my other bank, SVB was my ‘safe’ bank.” Because of this, he said most of his money is with SVB, which remains out of reach.
The waiting is the worst part, according to Levi, who said he and many others like him are now “in crisis mode, in triage mode.”
“We all went with the ‘best-in-class,” Levi lamented.
Levi now has more faith in J.P. Morgan, where he maintains his other accounts, noting that their bankers answered his urgent emails and phone calls last night into the early morning hours.
James Baer, a California-based attorney and restructuring expert, said on Friday that he expects the fallout from SVB’s failure to spread far and wide.
“There is a psychological element to this,” Baer, the president of CMBG Advisors, told The Daily Beast. “There’s no reason Silicon Valley Bank had to go out of business immediately. But people started panicking and getting their money out and it started feeding on itself.”
All accounts are FDIC-insured up to $250,000, but as the Associated Press pointed out, it is unclear how many accounts exceed that ceiling. Those with more money will get their $250,000, and a receivership certificate for the rest, Baer explained. That means when and if SVB files for bankruptcy or goes through another sort of liquidation proceeding, those customers will get their money first, he said.
Still, according to Baer, they could, in actual practice, only get back a portion of their funds. If people aren’t made whole, people then begin to lose confidence in the overall financial system and the entire apparatus begins to crumble as more and more depositors pull their money out of their own banks.
“What’s happening now, which is terrifying to people, is that companies are not able to make payroll because they’ve got their money at Silicon Valley Bank and their accounts are frozen,” Baer said. “Boards of directors can be held liable if they don’t make payroll, so they’re trying to borrow money to ride this out. The question is, when is the money [at SVB] going to be available? No one knows—and it may never be available.”
Journalist Eric Newcomer, who pens a widely-read newsletter focused on startups, wrote Friday that one major investor told him “about ten of his portfolio companies had pulled out about $1.5 billion collectively” from SVB. They requested the funds on Thursday at around 6 p.m. EST, and got it this morning, according to Newcomer.
It remains wholly uncertain how the SBV crash will end, though Baer sees lots more turbulence and fallout on the horizon.
“It’s like trying to land a 747 on an aircraft carrier,” Baer said. “And the answer to the question, ‘How do you land a 747 on an aircraft carrier?’ is, you don’t.”
For Levi, who feels confident that he’ll get his money back from SVB eventually, not having any sort of closure is still excruciating, for now. As he told The Daily Beast on Friday, “I’ve been better.”
A request for comment sent to the SVB communications team was met with an auto-reply that provided a link to an FDIC announcement of the bank’s takeover.
