Some 72 hours after the implosion of Silicon Valley Bank tipped the life sciences industry on its head, federal regulators have vowed to backstop all deposits to mitigate fear seeping into the financial system.
“Every American should feel confident that their deposits will be there, if and when they need them,” President Biden said in an address Monday.
On Friday, SVB became the largest bank in the U.S. to fail since the financial crisis of 2008. The California-based bank boasted nearly half of all U.S. venture-backed technology and life science companies as customers, with $342 billion in client funds and $74 billion in total loans. The failure stemmed from an attempt to raise funds through an underwritten public offering for up to $2.25 billion to cover losses from its Treasury and mortgage-backed securities portfolios. The effort failed, leaving many companies—including biotechs—rushing to withdraw funds in a bank run.
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Biden's comments come a day after the U.S. Treasury, Federal Reserve and the FDIC announced that depositors of SVB would be fully protected. The regulators also promised to back up depositors at Signature Bank, which failed Sunday, becoming the third largest bank failure of all time behind SVB.
The regulators came to their decision after recommendations from the boards of the FDIC and Federal Reserve and after consulting with President Biden. The U.S. government says customers of the two banks should have access to their money starting Monday. Funding for the accounts will come from a pool of money accrued from bank fees and will not be borne by U.S. taxpayers, the President said.
Wall Street held steady when the markets opened on Monday, with the Dow Jones staying flat. The S&P biotech fund XBI was up more than 2.7%, from $75.66 to $77.67.
The fortification was meant to reassure startup founders and venture capitalists who had been some of SVB’s most dutiful customers but stood to lose millions of dollars in deposits. SVB reported that depositors attempted to withdraw $42 billion on Thursday. Before lunchtime on the east coast Friday, the FDIC took control of the bank.
With millions of dollars in limbo over the weekend, public acknowledgment of financial exposure began to trickle in from biotech companies. X4 Pharmaceuticals said in a disclosure that it had 2.5% of its cash deposits with SVB. Eiger BioPharmaceuticals said SVB held nearly 7% of its cash, or $8.3 million. Mizuho Securities said exposure among its covered companies was “quite limited.”
Years of accrued confidence in SVB couldn’t contain paranoia among private financiers who on Thursday and Friday spearheaded efforts to pull money from the bank. A number of VC firms communicated with each other to coordinate decisions late last week, according to a source familiar with the conversations. One firm told Fierce Biotech that it had recommended that its California-based companies transfer money from SVB into First Republic.
Biden said that one of the key pillars of his administration’s response will be getting to the bottom of how a once-sound institution fell so suddenly.
"No one is above the law," the President said.