Influential voices from Wall Street and Silicon Valley used social media to urge regulators to bail out Silicon Valley Bank depositors. The strategy worked.
It will go down as one of the most successful lobbying campaigns in financial history.
As soon as US regulators shut down Silicon Valley Bank on March 10, a form of public lobbying to pressure the federal government to bail out the defunct tech lender’s thousands of depositors began on social media and especially Twitter.
Whether this lobbying campaign was coordinated is hard to say, but what is certain is that it was led by influential voices on Wall Street and Silicon Valley, including hedge fund manager Bill Ackman and venture capitalist David Sacks.
Tech billionaire and “Shark Tank” star Mark Cuban, who is a household name, was also one of the standard bearers for this unprecedented coalition.
‘Where’s Powell? Where’s Yellen?’: VC Sacks
Their forte is that they managed to arouse anxiety, fear, and even panic by almost conjuring up images of chaos and disaster, in case the authorities decided not to do something dramatic.
“Where’s Powell? Where’s Yellen? Stop this crisis NOW,” Sacks urged on March 10. “Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before it opens on Monday or there will be contagion and the crisis will spread.”
The next day, it was Ackman’s turn to awaken the specter of disaster.
“The government has about 48 hours to correct a mistake that will soon be irreversible. By allowing @SVB_Financial to fail without protecting all depositors, the world has realized what an uninsured deposit is: an unsecured illiquid claim about a failing bank,” Ackman criticized on Twitter on March 11.
“The unintended consequences of the government failing to guarantee SVB deposits are vast and deep and must be considered and addressed before Monday. Otherwise, be careful next.”
While Ackman later indicated that he had no direct exposure to SVBs, he did say that he is an investor in some companies, biotech funds, and startups “that may have some exposure to SVBs. Collectively, my exposure to companies is less than 10% of my assets.”
A lobbying campaign for startups
Remember that the FDIC took control of SVB (BLIMS) – Get a free reporton March 10 after a bank run. The run stemmed from the company’s announcement that it planned to raise $2.25 billion by issuing new common and convertible preferred shares to shore up its finances, following the sale of its bonds at a loss of $1.8 billion.
The federal agency thus became the manager of $175 billion in customer deposits, including money from various start-ups and some of the biggest names in the world of technology.
It created a new entity and indicated that unsecured depositors (SVB clients with more than $250,000 in their accounts) would not, for the time being, have access to their money. This announcement left a lot of uncertainty about the ability of many startups to operate in the coming weeks, since their funds were locked up. The FDIC had also said it would pay uninsured depositors an “anticipated dividend within the next week.”
The question was how much this “advance dividend” would amount to.
Companies with SVB accounts, lines of credit and credit facilities were wondering what this meant for them, when they would be able to access their funds, if they could withdraw all their funds and if they would have access to their credit. lines.
The lobbying campaign used the desperation of these many companies to stress to regulators that they had no choice but to guarantee all deposits.
“The tragedy of SVB is that it is not the rich who take the hit. It is the thousands of companies that borrowed from SVB and were asked to keep their cash in SVB. Those entrepreneurs and their employees and suppliers are feeling the pain. And they are the ones the Fed should protect,” Cuban urged on March 11.
Cuban said some of the startups in his portfolio, including the online pharmacy CostPlus Drugs.com, which he co-founded, had deposits of about $8 million to $10 million locked up at SVB.
“And for the record, I don’t have any personal funds there, although several of my portfolio companies do. Probably all around $8-10 million. So I can help them. But it’s the other 200b and how many employees and suppliers? I’m worried about them.”
‘Guarantee all deposits by Sunday night’: Ackman
Social media lobbyists were then more specific about the remedy to prevent further deterioration of the crisis: a bailout pure and simple. That’s even if they didn’t want to call it a “bailout” because the word is politically sensitive. During the 2008 financial crisis, the big banks bailed out with taxpayer money even though the companies had made bad decisions and taken excessive risks.
“What should the FDIC do? @FDICgov to guarantee all bank deposits Sunday night before Asia opens and call a timeout. Run a process to recapitalize @SVB_Financial,” Ackman suggested.
“FDIC develops new guarantee regime where large dollar deposit insurance is available up to reasonable limits per account to accommodate commercial borrowers while maintaining 100% guarantee. Once new deposit insurance regime is employed , the 100% guarantee is removed.
Sacks went on the defensive on March 12: “I’m not asking for a bailout. I’m asking bank regulators to ensure the integrity of the system. Either US deposits are safe or they’re not. If not, see below We have a very big problem on our hands”,
“SVB’s clients are being treated as if they were engaged in incredibly risky behavior for which they are being unfairly bailed out. But all they did was open a bank account! That’s not an investment, that’s a deposit.”
Cuban used much the same language, defending himself against advocating a bailout.
“And this is not a bailout. The Fed is effectively providing cash to end the run, and in return get long-term assets that will pay at maturity, and for risky assets, it should also offer a positive return. SVB You didn’t. Don’t buy bad assets. Don’t run, and survive.”
In addition to tweeting and interacting with Twitter users, they also participated in conversations on Twitter Spaces. Until the last minute, social media lobbyists kept the pressure on regulators.
“The startup economy actually needs speed and certainty more than full insurance. If the Fed announced Monday 85 cents on the dollar available, startups would survive,” Sachs tweeted a few hours before regulators made their announcement. “It is the rest of the economy that will suffer when the run on the regional banking system begins.”
A few hours later, the FDIC, the Federal Reserve and the Treasury Department released a plan that guarantees that all depositors will be able to receive all their money on March 13.
In addition, the Fed created a backstop for banks to avoid a liquidity crisis. This is more than what the lobbyists/social media influencers were asking for.
The three influencers, however, did not celebrate their historic victory. Now they have a new battle: push to change the $250,000 limit on FDIC-insured deposits. They are less passionate about this proposal.
“I’m not saying free unlimited FDIC coverage. Never. But creating accounts that are fully insured, with the necessary premiums attached, or some equivalent, is a necessity,” Cuban said on March 13.
