Brice Wallace
Utah officials in both the private and public sectors were breathing a sigh of relief early last week after the federal government took steps following the collapse of two large banks.
Silicon Valley Bank and Signature Bank represent the second- and third-largest bank failures in U.S. history, and SVB’s primary depositors were in the tech sector, leaving many to worry about impacts rippling through the banking industry and Utah’s tech sector.{mprestriction ids="1,3"}
At a March 13 virtual town hall organized by the Silicon Slopes organization, state and federal government officials and representatives of banks and tech institutions said action by the Treasury Department, the Federal Reserve, the FDIC and the Biden administration over the March 11-12 weekend had calmed their concerns. They had scrambled to develop plans in case the feds did not act during that weekend, which speakers said had an ominous “Everything Everywhere All at Once” vibe.
Gov. Spencer Cox said concerns focused on those with bank deposits at risk. “We recognize that some of you had the worst days of your professional careers over the past couple of days,” he told the town hall audience.
Particularly concerning was the thought that many tech-company depositors would be unable to access funds to meet payrolls on March 10.
“We knew that hundreds of businesses were impacted, and that means thousands and thousands of employees would have been impacted and [it] could have been devasting to our state,” Cox said.
“We were headed for hundreds of companies, thousands of jobs, imperiled day by day this week,” said Gavin Christensen, managing director of Kickstart Fund.
“These past few days have been stressful and highly eventful in the banking world,” said Scott Anderson, president and CEO of Zions Bank, who noted that the banks’ failures “have rattled the markets as well as many people’s nerves.”
Unsure what the federal government would do in the wake of the Silicon Valley Bank failure, Utahns rushed to meet and figure out contingencies. Cox said the weekend of March 11-12 featured long, late-into-the-night meetings. If the feds did not step up with appropriate actions, the state would have to “make sure that we’re helping those who are struggling,” he said.
Anderson said that Zions Bank worked with Silicon Slopes and government officials, VCs and others “to develop a plan to help companies caught in this collapse and have access to funds to keep their businesses open and operating.”
Carine Clark, chair of the Governor’s Office of Economic Opportunity (Go Utah) board, said help from the state’s Industrial Assistance Account was available to help companies needing it.
“We were organized and ready to go. …Thankfully, we didn’t have to pull the trigger on that,” Clark said.
The triggers were instead pulled by the federal government. Anderson said action by the Treasury and banking regulators “appear to have contained the risks that we were facing and the concerns that took hold among depositors at these banks.”
U.S. Sen. Mitt Romney, R-Utah, said the fed officials “have taken the necessary steps to calm the waters, and they will eventually get calmed.”
Several speakers at the town hall insisted that the U.S. banking system, even with those high-profile failures, remains resilient. Anderson said regulators are confident that the failures do not indicate “system or liquidity issues.”
Zions, he noted, differs from SVB and Signature Bank because those two had an “aggressive” growth rate and were focused on a particular type of client. In contrast, Zions Bank serves a diversified client base with many types of products in a large geographic area, he said. SVB’s average deposit account balance was “an astonishing” 22 times the size of the average account balance at Zions Bank, and it had only 5 percent of accounts fully insured, he added.
Randy Quarles, former Fed vice chair, said SVB suffered from depositors withdrawing their money all at once, and the problem was accelerated by social media, resulting in a ruinous run “in a way that we had simply never seen in the modern era.” SVB lost $40 billion in about four hours, “which no bank could withstand,” he said.
“This is really unusual,” Quarles said. “This is not indicative of any sort of general, systemic problem with the banking system.”
Because of Fed action, customers at other banks have no reason to have concerns about liquidity at those institutions, he said.
Several speakers sounded baffled by the SVB demise. Howard Headlee, president and CEO of the Utah Bankers Association, described SVB as a “phenomenal bank” that was “in good shape” and had “served the industry really, really well.” Its executives “were not out on the edge, doing crazy things,” he said. Romney said it was not a bank that “was doing crazy stuff,” while Quarles said it was “not a misbehaving bank.”
But speakers said the run on deposits was quickened by panic. Romney said runs can occur on anything — such as toilet paper during the early days of the COVID pandemic — and can be “irrational but real.”
“I’m confident that we’ll return to stability,” Romney said of the banking situation. “I guess I can say, I just don’t think we need to worry about the stability of our banking system or the stability of the companies and individuals who have their deposits in federally regulated banks.”
“The banking industry is incredibly strong right now,” Headlee said. “We’re in really good shape, but what we can’t have is these runs. Nobody can stand a run; we’re just not set up for that.”
Christensen said people now can feel calm. “It’s going to be fine,” he said.
Still, there might be lessons to take from the situation. Ben Capell, partner at Peterson Partners, said tech companies will always need access to venture debt but might be better served to have capital in other banks rather than just one financial institution.
Utah House Speaker Brad Wilson said he was happy that the Fed stepped up with appropriate action, although he said “I think they look silly, at best, right now in terms of allowing this to happen.”
Wilson reiterated the importance of the tech sector to Utah.
“From the state, from the Legislature, I just think it’s important that we convey our commitment and vested interest in the success of this industry. … [I’m] really grateful that things have turned out this morning in a way that we didn’t necessarily think they might as this started happening over the weekend,” Wilson said.
The state has tools available to help companies in such circumstances, he added.
“There are, I think, a lot of lessons that we can learn as a state, and we will try to keep our eye on things like this a little bit more so that we’re ready. … [I’m] cautiously optimistic that this is going to work out really, really well.”
“What we’ve learned in the last few days,” Headlee said, “is very troubling in some ways — very enlightening — and I just hope we learn the right lessons from what just happened.” Romney, who said the Biden administration took the right steps to deal with the crisis, cautioned that the bank situation nonetheless would be politicized.
“Anytime anything happens in our country, the politicians jump in and try and blame the other side,” he said. “I frankly think that’s a bit sick at a time like this when people are very nervous.”{/mprestriction}
