Silicon Valley lawmaker explores legislation after bank collapse

Two weeks after Silicon Valley Bank’s collapse left thousands of businesses reeling, one Silicon Valley lawmaker is exploring legislation to ensure it doesn’t happen again.

At a discussion in Santa Clara on Saturday with nonprofit and business leaders, Congressman Ro Khanna announced he’s crafting legislation that would require banks to pay higher premiums to the Federal Deposit Insurance Corporation (FDIC) to protect all account holders — including those with funds higher than $250,000. The revenue would protect deposits in case of a collapse.

“I think (this legislation) is promising if I can get a Republican to sign on,” Khanna told San José Spotlight. “Right now you basically have large accounts acting as uninsured drivers. The government ends up covering them if they fail, but they’re not paying for the insurance beyond $250,000, so we need to have some fees and some insurance.”

Financial regulators abruptly closed Silicon Valley Bank on March 10 after uncertainty about its solvency led to a massive bank run. The bank’s failure is the second largest in U.S. history and SVB reportedly held $209 billion in assets at the time of its collapse.

The closure sent a wave of panic among thousands of tech businesses, nonprofits and startups that questioned how they’d make payroll and keep their doors open without access to their funds.

The Federal Reserve Board said all depositors at Silicon Valley Bank could access their money the following Monday — three days after the collapse — including funds beyond the $250,000 insurance cap. The announcement led to lines wrapping around the bank’s headquarters in Santa Clara with anxious account holders waiting to pull their money.

Still, two weeks later, many business leaders are apprehensive about the future.

Marie Bernard, CEO of homeless prevention nonprofit Sunnyvale Community Services, said she’s worried about a SVB loan taken out to pay for her nonprofit’s new office. If the loan falters, the nonprofit will be forced to foot the bill and cut back services like rent relief and food for needy residents. She’s relieved the nonprofit’s $1 million in the bank is safe.

“We still don’t know what’s going on with the loan (for the new office space),” Bernard said at the Saturday discussion. “We’re on pins and needles until we can either raise the remaining money for the mortgage, or we find that we can potentially refinance.”

Austin Sendek, co-founder and CEO of climate-tech startup Aionics, Inc, which uses artificial intelligence to find environmental solutions, said climate-tech businesses like his struggle to get investments.

“Climate tech is already seen as a somewhat risky investment, so when you get those investment dollars in your bank account, you want to protect them,” Sendek said. “We’re (also) going into a macro-economic environment where venture capital seems to be sort of becoming a little bit harder to come by.”

Without protection from the FDIC, Sendek said a generation of climate-tech startups in the region would be wiped out financially and struggle to secure future investments.

Nico Pinkowski, CEO of Nitricity Inc — a startup that transforms water, air and solar into nitrogen fertilizer — said now that he’s made payroll and vendor payments, his biggest worry is how SVB’s failure may impact other regional banks. Deposits at small U.S. banks dropped dramatically in the week following the collapse of Silicon Valley Bank on March 10, data by the Federal Reserve showed.

He said climate-tech companies like his survive because of the flexibility regional banks can provide.

“We need these banks to continue to be there and we need to rebuild trust,” Pinkowski said. “Any and all ways the government can support rebuilding of trust makes ultimately a very large difference for companies like ours.”

Khanna said Americans should feel confident in the U.S. banking industry. In the last 10 years, 73 banks have failed and the depositors at all of them were made whole, he said. In response to criticism that the government is bailing out billionaires, Khanna said SVB’s situation is different from the 2008 financial crisis because the protection is for small businesses, nonprofits and tech startups — not bank executives and shareholders.

“(This wasn’t) just bailing out the rich people in Silicon Valley,” Khanna said. “These were the climate tech startups. These were the startups at biotech. And these were a lot of organizations that were actually serving the community.”

Contact Jana Kadah at [email protected] or @Jana_Kadah on Twitter.