Alejandro Arrieche
Etsy, the online marketplace for used and handcrafted goods, said yesterday that it expects to be able to resume its payments to sellers today following news that the government is guaranteeing all of the deposits that both individuals and companies had on the Silicon Valley Bank.
On Saturday, published an update in which they explained that sellers may not receive their payments on time amid the “unexpected collapse” of SVB. The company also said that it does not expect that this delay will have an impact on its financial results covering the first quarter of 2023.
Apart from Etsy (ETSY), other companies within the tech sector were reportedly experiencing similar liquidity issues as a significant portion of their cash holdings was deposited at the demised financial institution.
One example of this is Roku (ROKU) as the company revealed that 26% of its cash – around $487 million – was deposited with SVB while Wrapbook, a startup that provides payroll services, reported that there will be delays in the payments made to its customers’ workers.
Some other startups have also said that they may struggle to make their payroll payments on time as was the case of Rippling and FarmboxRx, according to a report from Axios.
The Fed, Treasury, and FDIC Stepped In to Salvage Things
The actions taken by the Treasury Department, the Federal Reserve, and the Federal Deposit Insurance Company (FDIC) this Sunday have alleviated the situation as depositors were assured that they will have access to their money today.
“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe”, a joint press release from the three institutions asserted.
However, the same issues that brought down SVB could be brewing within banks on the West Coast and this has put pressure on the stock of multiple institutions in the area including the First Republic Bank and the Western Alliance Bancorp, whose share values are dropping by more than 60% in pre-market stock trading action this morning.
The main concern from investors may be that, if multiple regional financial institutions experience bank runs, the Fed may not be able to contain the fallout. Even though this is a highly unlikely turn of events, odds are that a high number of tech companies may have portions of their cash deposited with these institutions.
Why Are Some Banks Struggling?
The Fed and the Treasury are standing by to help other banks that may face a liquidity crunch if they are hit with massive withdrawals. At this point, banks are reportedly sitting in huge unrealized losses of more than $600 billion resulting from their exposure to debt securities including US Treasury bonds and mortgage-backed assets.
These financial instruments have seen their value plummet in the past 12 to 24 months amid the impact that the Fed’s multiple interest rate hikes have had on valuations and investors’ confidence in the economy.
In the United Kingdom, authorities managed to arrange the sale of SVB UK to HSBC for £1 to protect the country’s financial system as the bank has extensive dealings with the British tech sector and its collapse could have caused severe issues.
Founders and other figures within the tech space have welcomed the news and have congratulated UK regulators for stepping up so quickly to arrange the sale of the bank.
The International Monetary Fund (IMF) said yesterday that it is “closely monitoring” the implications that the recent developments concerning the Silicon Valley Bank could have for the stability of the global financial system.
Other Related Articles:
- Best Tech Stocks to Buy in March 2023
- 10 Best Crypto VC Firms & Web3 Funds
- Here are The Listed Companies with Big Exposure to SVB
This article was written for Business 2 Community by Alejandro Arrieche.
Learn how to publish your content on B2C
Join our Telegram channel to stay up to date on breaking news coverage
Add B2C to your Google News Feed
Discuss This Article
Add a New Comment /Reply
Thanks for adding to the conversation!
Our comments are moderated. Your comment may not appear immediately.