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SALT LAKE CITY — Federal regulators promised over the weekend to cover all depositors, even those with balances in excess of the $250,000 insurance cutoff, at both Silicon Valley Bank, which was shut down Friday, and New York-based Signature Bank, which was shuttered on Sunday by state regulators.
Silicon Valley Bank was a major financial conduit between the technology sector, its founders and startups, as well as its workers. Signature Bank was likewise hyper-focused on the cryptocurrency sector. The failures of Silicon Valley Bank and Signature Bank stand as the second and third largest bank failures in U.S. history.
The demise of Silicon Valley Bank stood to impact the operations of hundreds of Utah startup businesses as well as numerous venture capital firms in the state. Utah leaders were reportedly working over the weekend to construct a plan to assist those businesses and their employees amid a crisis that severed access to accounts at the closed banks.
But that plan was rendered moot thanks to moves by the Treasury Department, Federal Reserve and FDIC, which jointly announced on Sunday that all Silicon Valley Bank and Signature Bank clients would be protected and able to access their funds.
"This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth," the agencies said in a joint statement, per the Associated Press.
'Very intense 48 hours'
Utah state and business leaders, including Gov. Spencer Cox and Sens. Mike Lee and Mitt Romney, participated in a virtual town hall meeting organized by tech sector advocacy and education group Silicon Slopes on Monday morning.
Cox said he worked over the weekend with Utah House Speaker Brad Wilson, Senate President Stuart Adams, Utah congressional members and stakeholders from state banks and the tech community to assemble a plan to provide a conduit to financial support for Utah companies impacted by the bank closures.
"I'm really pleased that I don't have much to report because of the changes that happened yesterday," Cox said. "It was a very intense 48 hours for everyone involved and especially those whose deposits were at risk."
Cox said that while implementing the plan became unnecessary after federal regulators stepped in to protect depositors, he was proud of how fast state leaders responded to the crisis.
"We're here, we care and we're willing to spring into action when you need it," Cox said.
Details of what that plan entailed were not shared at the meeting.
Effect of social media
Silicon Valley Bank's failure was precipitated in large part by a tsunami of customer withdrawals, some $40 billion in a matter of hours last week, fueled by social media postings claiming the bank was approaching insolvency and accommodated by speedy electronic funds transfers.
Former vice chairman of the Federal Reserve, Randy Quarles, participated in Monday's meeting and noted the role social media platforms played in the demise of Silicon Valley Bank.
"The role of social media is something that the regulatory system, the Federal Reserve and other regulators have not really taken into account around the dynamic when a bank is under pressure," Quarles said. "It's clear that the panic being spread on Twitter was a significant contributor here."
'Calm the waters'
Romney said he expects it will take some time for federal banking officials to unravel all the factors that contributed to failures at Silicon Valley Bank and Signature Bank following the closure decisions.
"What leads to these kinds of panic rushes is hard to assess," Romney said. "That's going to be done over the coming months. The key thing is the Fed and FDIC have taken the necessary steps to calm the waters."
Utah Bankers Association President and CEO Howard Headlee said Silicon Valley Bank was not in financial distress when it was closed but rather became the victim of irrational customer behavior. Headlee also noted that a customer run can impact any financial institution.
"SVB was a phenomenal bank and it was in good shape," Headlee said. "If capital is king then confidence is queen and I think, in many cases, that the queen is running the show.
"What we can't have are these runs. Nobody can withstand a run."
Gavin Christensen, founder and managing partner of Utah-based venture capital firm Kickstart Seed Fund, was a client of Silicon Valley Bank, as were many of Kickstart's portfolio companies.
On Monday, Christensen said he was glad his company is based in a state where leaders "really understand business and has senators and national players that get this."
Christensen said the Silicon Valley Bank had financial connections with half or more of all Utah startups and its failure, without the backup that was offered by federal regulators over the weekend, would have imperiled "hundreds of Utah companies and thousands of employees."
'There will be a change'
Darryle Rude, commissioner of the Utah Department of Financial Institutions, said he expects regulators to make changes following the collapse of Silicon Valley Bank and Signature Bank.
"There will be a change in the way banks operate in the future," Rude said during the Silicon Slopes meeting. "We'll have to absorb the new programs that the Fed and FDIC put into place. I'm sure there will be a lot more emphasis on uninsured deposits and concentrated risk in single industries."
Even as federal regulators worked to calm wider concerns about the U.S. banking industry, numerous banks saw steep stock declines on Monday, including Salt Lake City-based Zions Bank.
Zions' stock price dropped by over 40% Monday morning before recovering some of those losses and was trading at about $33 per share at midday Monday, down about 18% for the day.
In a note sent to the bank's customers on Monday, Zions Bank President and CEO Scott Anderson sought to offer reassurance that Zions was not in financial peril and noted the two failed banks were of markedly different structure than his institution.
"The past few days have been stressful and highly eventful in the banking world," Anderson wrote. "The failure of two large banks, Silicon Valley Bank in Santa Clara, California, and Signature Bank, in New York City, have rattled the markets as well as many people's nerves.
What we can't have are these runs. Nobody can withstand a run.
–Howard Headlee, Utah Bankers Association
"Silicon Valley Bank and Signature Bank had singular characteristics that proved to be unstable, particularly in the current environment of rising interest rates. What set these banks apart was their extremely high growth rates in recent years, and their concentrations of large, uninsured deposits from clients in the technology and cryptocurrency industries, respectively."
Anderson noted that Zions' deposits "are held in 1.4 million accounts, and these accounts overwhelmingly tend to be smaller in size and operational in nature. Notably, the average balance of an account at Silicon Valley Bank was about 22 times the size of the average balance in a Zions account, which made Silicon Valley Bank much more susceptible to the kinds of outflows they experienced last week. The situation was similar at Signature Bank."
"The credit quality of our loan and securities portfolios has been outstanding in recent years, and our capital remains strong," Anderson wrote.
