by G.G. Zangar
On Friday, March 10th, the sixteenth largest bank in the United States, Silicon Valley Bank, fell victim to the profession’s oldest malady; a classic bank run. As is the interconnected state of finance capital today, the run on Silicon Valley Bank spooked investors elsewhere which has now caused other big players such as Signature Bank and Silvergate Bank to fall in quick succession, thus leaving the Monolith Charles Schwab with an ambiguous future as shares dropped by 10% on Monday, March 13th. Many working-class Americans may have assumed that we have been safe from the spontaneous sublimation of our humble investments since the 2008 crisis, however those with even cursory knowledge of our economic system will understand that crises in capitalism are a feature and not a bug.
To begin to delve into the topic of the SVB’s demise we should first get an idea of what type of bank it is. According to their own website, their Q4 2022 assets consisted of $212 billion with $342 billion in total client funds.[1] They deal with big names such as Shopify, Ziprecruiter, Payoneer, and Roku. SVB has broad reach, with their self-proclaimed business aspects being in “global commercial banking, private banking, and wealth management, investment banking, [and] venture capital and credit investing”.[2] This demonstrates that SVB is responsible for a lot of money and that it has its assets intertwined with other financial institutions around the world in the forms of stocks, bonds, securities, and any other financial bundling that finance capitalists conjure up and promise a return on. The precarity in the global financial imperialist system has been brought to light again by the run on SVB. The ripples made by the run on SVB are making financial firms around the world vulnerable to the risk of their many investments losing all or most of their value instantaneously. The threat of the loss of investments is exponentially more for working-class people as we do not have second homes or diverse investment portfolios as banking executives do. When the abstract money-making schemes of an omnipresent bank like SVB are exposed, the repercussions are ultimately shouldered by the working class around the world.
Upon investigating the links on SVB’s website, you will at some point be abruptly redirected to a page obviously put up in haste stating that the bank was closed by the “California Department of Financial Protection & Innovation,” amidst a host of other federal organizations that exist to take over when financial organizations undergo catastrophe. [3]
Image of the redirect page demonstrating the Silicon Valley Bank’s cease of function.
SVB’s closure is the biggest bank failure since 2008 due to the amount in assets it has that are largely considered safe to the extent that it was the sixteenth largest bank in the US. [4] The size of SVB and the fact that it was generally perceived as secure makes its sudden downfall, the duration of which was less than one work day, particularly jarring for the modern state of globally interconnected finance capital.
According to Euronews, SVB’s clients became spooked by the low rate of return of the bonds which the bank invested in. The bank heavily invested in government bonds which give a low guaranteed rate of return. Such bonds are usually still low-risk investments for how much money banks invest in them and for how long the banks hold onto these bonds. In this case, The Federal Reserve’s recent raising of interest rates has caused the bonds that SVB was holding to be worth even less, for bonds sold nowadays have a much higher rate of return. Hence, this makes the old bonds undesirable to potential investors. SVB was holding onto an abundance of undesirable bonds. There is speculation as to what the actual trigger for the bank run was. It was public knowledge that SVB was heavily invested in these low-return bonds but there is currently investigation into the role of Peter Thiel’s venture capital firm Founder’s Fund in the run on SVB. Founder’s Fund had withdrawn millions and had no assets with SVB by Thursday morning (3/9/2023) as well advising their associated companies that there was “no downside” to moving away from SVB altogether.[5] SVB failed the very next day. The coalescing factors that were a mass withdrawal by Peter Thiel’s Founder’s Fund, the mass withdrawals of venture capitalist firms associated with Founder’s Fund, the subsequent loss of faith by depositors, and an economy generally hostile to the working class, are what motivated mass withdrawals by depositors and resulted in an old-fashioned run on the bank.[6]
The bonds are a critical aspect of the downfall of SVB for the fact that it was not that the bank did not have the cash, it was that they were illiquid. In order to attempt to satisfy the mass demand for withdrawals, the bank had to liquidate (sell) its bonds immediately and at a huge loss because nobody wanted to buy them. The extent of the loss is such that SVB became insolvent in a matter of hours. The facts are not all out yet but while the Federal Deposit Insurance Corporation (FDIC) states that “[a]ll insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023”[7], other huge companies that were not insured have had their stock prices plummet. The company Roku had over $480 million held by SVB that was largely uninsured and of which they likely will not get back. The old robber baron’s institution JPMorgan lost $55 billion in an instant due to the tumult of SVBs fantastic downfall.[8] The demise of SVB has a high likelihood of spreading financial devastation to other parts of the global economy in addition to the US due to the immensely convoluted ways money is invested nowadays. SVB has a branch in the UK in which the insolvency is causing inability for companies to meet payroll.[9] The online craft-selling website, Etsy, is currently unable to meet its payroll obligations due to it having banked with SVB. The full extent of the damage is not yet known and will only be revealed in time.
Will the fall of SVB act as a contagion and be a precursor to a 2008-esque economic crisis? This, unfortunately, seems likely, especially considering the Chief Administrative Officer of SVB is Joseph Gentile, the Chief Financial Officer of Lehman Brothers whose financial criminality, in the form of bundling and selling of deceptive sub-prime mortgages as prime investments, caused the 2008 financial crisis. In a strange turn of events, the FDIC ended up paying insured and uninsured depositors the standard coverage rate of $250K through a loophole called “Systematic Risk Exemption”.[10] This loophole allows the FDIC to cover more than just the insured depositors when the Treasury Secretary deems the disbursal necessary to avoid systemic risk.[11] The intervention by the FDIC equates in all but name to a bailout in which the money inevitably comes from the pockets of workers. In a statement made on Monday by the President Joe Biden; “no losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund.”[12] This statement made by the president looks great on the surface but there is nothing stopping banks from passing the increased cost of this tax onto the depositors in the form of fees. No matter what happens, it will be the working class who will foot the bill and get burned in the interests of capitalist profits.
Just as $500 billion dollars of working-class money was used to bail out failing banks in 2008, or the $400 billion dollars in Paycheck Protection Program (PPP) “loans” early on in the pandemic that were forgiven, or any other “austerity measures” enacted in history, the current SVB bank run and the banks to follow will affect the working class in acute ways as annihilating pensions, raising fees and penalties for banking service, and disappearing investments in stocks and assets related to SVB or interwoven partners.[13][14] We do not yet know if this will be another global financial crisis or if the crisis will simply be “ameliorated” by the US government printing more money and bailing these institutions out which does not resolve the inherent contradiction in capitalism but only postpones the consequences. If working-class tax dollars are used to bail these banks out, the CEOs will get bonuses and even a job in a similar position at another bank while the working-class people’s investment portfolios held up in venture capitalist funds will remain nonexistent. If the US government prints money to grant these banks liquidity to pay off the bank run, the higher-ups will still get bonuses, remain working in their positions, and then the entire banking sector will know that they can gamble with peoples’ money as much as they want because the precedent will have been set that there are no repercussions. The ruling class in this country is vile, but one must stand in awe at the extent of their class solidarity because it is not unusual to see these elites tank the economy and still get richer. As the details on the fall of SVB come out, we are likely to hear about instances of peoples’ pensions being annihilated and savings accounts bound up in the stock market reduced to a fraction of what they were. We could see some of the last vestiges of “competition” in the form of small businesses and financial institutions going under evident in situations such as the post-COVID housing crisis where the massive financial company, Blackrock, bought up housing when the economy tanked which has pushed the majority of working-class people out of the market to own a place to live. When working-class people and even members of the petite bourgeoisie are forced to sell off what few assets they have for basic necessities, predatory capitalist firms swoop in like vultures and purchase said assets at a discount, thus consolidating capital further in the hands of the few extremely wealthy. Due to the inherent contradiction between the profit motive and the need to pay wages, we have already seen companies such as Etsy refuse to pay workers at the knowledge of the collapse of SVB and now Signature Bank. The case of SVB going under is likely to be devasting in many forms to working people around the world. Hence, it is a good time to step back and analyze this situation for the purpose of garnering class consciousness.
There is a profound absurdity that working-class people, especially in the US, are at such a point in the development of capitalism (imperialism) where we are forced to essentially gamble on every object that is necessary for our lives. To draw an analogy, If we want a pension, we must give our money to a financial institution that is akin to an experienced poker player to go play it all at the card table that is analogous to the DOW, NASDAQ, or S&P 500. If the poker player (the investment fund) loses all our money, we are just “out of luck” while the fund gets bailed out by the taxes working-class people earned. If we working-class people want a house, then we are subject to fluctuations in price that are the result of speculations of massive financial firms like Blackrock and Zillow who buy up these assets with the intent of extorting us for the sake of their profits. One of the more absurd examples of the poker game we call “the market” in the US is the recent post-COVID effect on the car market, where, for a brief period, new cars were cheaper than used cars.[15] We workers need to ask ourselves why, when we spend so many hours of our waking lives working for a wage, must we also put up with such a treacherous landscape where we must gamble on the market for our human needs? Additionally, this landscape is paved by and for the profit-seeking parasites at the top of the capitalist food chain. Under capitalism, those that work for a living and put in all the hard work to build society must simply hope that we are in the market for a certain necessity of modern life at the right time with the right institution, or else face absolute ruination with no consequences for the capitalists.
Given our levels of economic and technological development as a society, all workers must be guaranteed a minimum standard of living and not be at the whim of “market fluctuations” for essential goods such as food, transportation, retirement funds, or in this case, just a place to hold our earnings. We must move away from this barbaric, outdated system of capitalism toward socialism. We need socialism now just as we have needed it at its inception. The inherent contradictions of capitalism are still exploiting our labor, pushing us to needless bourgeois war, and extorting us for basic necessities. We want to work to contribute to our society and not some parasitoid class of oligarchs. We need socialism because workers need basic securities, such as a place to store money, healthcare, housing, and elderly care for when our bodies grow feeble. We, the working class, must fight for socialism because we know the ruling class profits off of our suffering to live lavish lives at our expense.
SVB is a massive predatory financial institution with global reach whose practices have led to its downfall, which is only one sign of a larger problem. The demise of SVB will have negative repercussions for the US and global working class by wiping out the savings and investment portfolios of workers. As we have seen before, the ruling class is likely to make it out unscathed, if not even richer. Though the particular banks at this time are SVB and Signature Bank, there are many others like it that feed off of the fruits of our labor as workers. The global imperialist system is comprised entirely of institutions whose goal is to extract value from us and preserve the economic relations of the capitalists. The working class will never be helped or saved by a capitalist bank; it is only through our own collective power that we as a class have the ability to alter our conditions.
Sources Cited
Business Insider. “US Bank SVB Taken over Is Largest Failure since 2008.” Accessed March 11, 2023. https://www.businessinsider.in/international/news/us-bank-svb-taken-over-is-largest-failure-since-2008/articleshow/98560513.cms.
euronews. “Silicon Valley Bank Failed. Here’s How and Why It Happened,” March 11, 2023. https://www.euronews.com/next/2023/03/11/silicon-valley-bank-collapse-heres-how-and-why-it-happened.
“Facts at a Glance.” Accessed March 11, 2023. https://www.svb.com/newsroom/facts-at-a-glance.
“FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California.” Accessed March 11, 2023. https://www.fdic.gov/news/press-releases/2023/pr23016.html.
“Home.” Accessed March 11, 2023. https://www.svb.com/.
Hunt, Simon. “‘We Can’t Make Payroll’: Tech Firms in Cash Crisis amid Silicon Valley Bank Collapse.” Evening Standard, March 11, 2023. https://www.standard.co.uk/business/we-can-t-make-payroll-scores-of-tech-firms-in-cash-crisis-amid-silicon-valley-bank-collapse-fintech-insolvency-b1066554.html.
Kinery, Emma. “‘That’s How Capitalism Works,’ Biden Says of SVB, Signature Bank Investors Who Lost Money in Failed Banks.” CNBC, March 13, 2023. https://www.cnbc.com/2023/03/13/thats-how-capitalism-works-biden-says-of-svb-signature-bank-investors-who-lost-money-in-failed-banks.html.
MIT Sloan. “Here’s How Much the 2008 Bailouts Really Cost,” March 13, 2023. https://mitsloan.mit.edu/ideas-made-to-matter/heres-how-much-2008-bailouts-really-cost.
NBC News. “Government Has Forgiven Nearly $400 Billion in Covid-Relief PPP Loans,” July 21, 2021. https://www.nbcnews.com/business/personal-finance/government-has-forgiven-nearly-400-billion-covid-relief-ppp-loans-n1274618.
NerdWallet. “Why Many New Cars Are Cheaper Than Used,” March 30, 2022. https://www.nerdwallet.com/article/loans/auto-loans/why-many-new-cars-are-cheaper-than-used.
Pound, Jesse. “Silicon Valley Bank Is Shut down by Regulators in Biggest Bank Failure since Global Financial Crisis.” CNBC, March 10, 2023. https://www.cnbc.com/2023/03/10/silicon-valley-bank-is-shut-down-by-regulators-fdic-to-protect-insured-deposits.html.
Yahoo Finance. “Inside the Legal Loophole US Regulators Used to Bail out SVB Depositors,” March 15, 2023. https://finance.yahoo.com/news/inside-the-legal-loophole-us-regulators-used-to-bail-out-svb-depositors-122418679.html. Yahoo News. “Thiel’s Founders Fund Withdrew Millions From Silicon Valley Bank,” March 11, 2023. https://news.yahoo.com/thiel-founders-fund-withdrew-millions-005223787.html.
[1] “Facts at a Glance,” accessed March 11, 2023, https://www.svb.com/newsroom/facts-at-a-glance.
[2] “Facts at a Glance,” accessed March 11, 2023, https://www.svb.com/newsroom/facts-at-a-glance.
[3] “Home,” accessed March 11, 2023, https://www.svb.com/.
[4] Jesse Pound, “Silicon Valley Bank Is Shut down by Regulators in Biggest Bank Failure since Global Financial Crisis,” CNBC, March 10, 2023, https://www.cnbc.com/2023/03/10/silicon-valley-bank-is-shut-down-by-regulators-fdic-to-protect-insured-deposits.html.
[5] “Thiel’s Founders Fund Withdrew Millions From Silicon Valley Bank,” Yahoo News, March 11, 2023, https://news.yahoo.com/thiel-founders-fund-withdrew-millions-005223787.html.
[6] “Silicon Valley Bank Failed. Here’s How and Why It Happened,” euronews, March 11, 2023, https://www.euronews.com/next/2023/03/11/silicon-valley-bank-collapse-heres-how-and-why-it-happened.
[7] “FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California,” accessed March 11, 2023, https://www.fdic.gov/news/press-releases/2023/pr23016.html.
[8] “US Bank SVB Taken over Is Largest Failure since 2008,” Business Insider, accessed March 11, 2023, https://www.businessinsider.in/international/news/us-bank-svb-taken-over-is-largest-failure-since-2008/articleshow/98560513.cms.
[9] Simon Hunt, “‘We Can’t Make Payroll’: Tech Firms in Cash Crisis amid Silicon Valley Bank Collapse,” Evening Standard, March 11, 2023, https://www.standard.co.uk/business/we-can-t-make-payroll-scores-of-tech-firms-in-cash-crisis-amid-silicon-valley-bank-collapse-fintech-insolvency-b1066554.html.
[10] “Inside the Legal Loophole US Regulators Used to Bail out SVB Depositors,” Yahoo Finance, March 15, 2023, https://finance.yahoo.com/news/inside-the-legal-loophole-us-regulators-used-to-bail-out-svb-depositors-122418679.html.
[11] “Inside the Legal Loophole US Regulators Used to Bail out SVB Depositors.”
[12] Emma Kinery, “‘That’s How Capitalism Works,’ Biden Says of SVB, Signature Bank Investors Who Lost Money in Failed Banks,” CNBC, March 13, 2023, https://www.cnbc.com/2023/03/13/thats-how-capitalism-works-biden-says-of-svb-signature-bank-investors-who-lost-money-in-failed-banks.html.
[13] “Here’s How Much the 2008 Bailouts Really Cost,” MIT Sloan, March 13, 2023, https://mitsloan.mit.edu/ideas-made-to-matter/heres-how-much-2008-bailouts-really-cost.
[14] “Government Has Forgiven Nearly $400 Billion in Covid-Relief PPP Loans,” NBC News, July 21, 2021, https://www.nbcnews.com/business/personal-finance/government-has-forgiven-nearly-400-billion-covid-relief-ppp-loans-n1274618.
[15] “Why Many New Cars Are Cheaper Than Used,” NerdWallet, March 30, 2022, https://www.nerdwallet.com/article/loans/auto-loans/why-many-new-cars-are-cheaper-than-used.