The seizure of Silicon Valley Bank is having large ripple effects across Massachusetts, in markets as diverse as tech, finance and even affordable housing.
Silicon Valley Bank imploded on Friday when federal regulators announced their takeover of the institution. The second-largest bank failure in U.S. history was triggered by its disclosure last week that SVB had growing losses on government bonds because of rising interest rates. That’s when many clients began withdrawing their funds, causing it all to capsize.
The Federal Deposit Insurance Corporation, or FDIC, said customers will have access to their funds on Monday. Silicon Valley Bank did not return requests for comment.
“It’s a seismic event in our financial system and our banking system,” said Cornelius Hurley, a banking law professor at Boston University. On Sunday, New York state regulators also announced they were shuttering the New York-based Signature Bank, with the FDIC taking control of the company, too.
Some startups can lean into the bailout from the federal government, but relief might be more complicated for the housing industry. The big reason for this is Silicon Valley Bank’s $900 million acquisition of Boston Private Bank, a trust and banking provider that long had a major presence in the region. SVB’s website says that is has loaned and invested more than $2 billion in affordable housing projects nationwide since 2002. Beyond immediate concerns of payroll, some worry that it will make funding more difficult for current projects in the region.
“It was a very strong community lender involved in a lot of affordable housing deals,” said Marc Draisen, head of the Metropolitan Area Planning Council. He estimates the number of nonprofit developers in the area that relied on SVB for loans to be in the “double digits.” He said that with real estate deals, developers generally have to deposit their money in the bank as well, not just take the loans.
“A lot of affordable housing lenders have deposits,” Draisen said. ”In some cases, it can also include construction loans — which, of course, could be one of the most serious parts of this situation, because those developers may have to go out and get another construction loan if the cash will no longer be forthcoming from Silicon Valley Bank.”
Developers could hit a barrier when they find much higher interest rates at those other banks, and lose funds.
More immediately, there are concerns about how to pay contractors.
Draisen said this is all a reminder of why diversifying financing is important. “It’s a reminder that we need lots of banks to be involved in financing affordable housing, not just a small handful,” he said.
In Boston, Mayor Michelle Wu’s administration created a survey to gauge impact from area entrepreneurs and businesses.
“This is a deeply distressing moment for many business leaders, entrepreneurs, nonprofits, and workers in our community, and they will not be left to fend for themselves,” the mayor said in a statement. “In partnership with the Commonwealth, our immediate focus is helping our businesses make payroll and provide for their employees. We appreciate the local banks stepping up quickly to serve these companies and support their workers.”
Wu said in a press gaggle that so far a “small number” of affordable housing developments considered SVB for construction loans, with seven identified so far. The mayor said she doesn’t believe those who got mortgage products from SVB will have any risk of their funding being jeopardized, but “we are working to get in touch with everyone individually and make sure we can be a support as well.”
The uncertain path forward
The FDIC said that customers who had up to $250,000 per account deposited with SVB would have access to their funds, but people with an excess of that have to call individually. Many developers borrow over $250,000.
The impacts on existing affordable housing projects could be wide ranging. While the FDIC only commented on deposits, Silicon Valley Bank was involved in a multitude of obligations beyond that, to developers.
“There's projects at different points in the process, right? So one would expect it would be different in each one of those points in the process. But the point is, it's much more than just deposits that the bank was involved in,” said Kevin Murray, interim executive director of the Massachusetts Association of Community Development Corporations.
He said the organization had a meeting this morning to discuss the impacts with local community development corporations.
“One woman who came to the meeting today was very concerned because they just last week finished the first-time homebuyer course and SVB was one of the main participants on the banking side,” Murray recalled. “So what happens to all those people who've been through this whole process? What does it mean to become a first-time homebuyer and suddenly the main partner in this process is gone?”
A number of nonprofits are being impacted by the SVB’s collapse as well, according to Jim Klocke, CEO of the Massachusetts Nonprofit Network, for the same reason: being holdover clients of Boston Private Bank.
Some of the uncertainty was rectified when the federal government announced they were going to make depositors at SVB whole, said Klocke. But the whole situation is putting donors on edge.
“Frankly, the news that the bank was in trouble, the news that the bank was being closed then in and of itself creates tremendous uncertainty among employees who wonder about their next paycheck, among vendors who wonder about their next payments, and among nonprofits who have been planning to receive donations from people who might now be more reluctant to make donations because their bank just went under,” he said.
For venture capital fund firms, it was about finding fast solutions to an unpredictable situation.
Adrian Mendoza, general partner of Mendoza Ventures, a Boston-based venture capital fund, said he was up past midnight helping clients who have accounts with SVB.
“Over the weekend we saw both funds and businesses unable to run payroll at all,” he said. “We reached out to our entrepreneurs. We had minimal exposure, anyone who had just a little bit — we reached out to our other banking partners and they quickly spun up, over the weekend, bank accounts.”
Hurley, the Boston University professor, questions whether the federal government is raising the deposit insurance ceiling “to the sky” and said that hasn’t been answered yet. He anticipates that there will be broader repercussions to taxpayers.
“When banks have to pay higher premiums to the FDIC, they’re going to take that out on somebody. They’re going to take it out on their customers, either in the form of higher fees or lower deposit rates or higher credit rates on loans. So there’s a tremendous impact on the taxpayers,” he said.
Gov. Maura Healey sent a statement to reporters on Sunday, saying that her office is “closely monitoring” the situation, and has been in contract with federal regulators about impact.
“Our administration is actively working to support individuals and businesses affected by SVB’s closure and to find solutions to help them address immediate needs, including putting supports in place to ensure that small businesses and employees do not experience significant disruptions,” Healey wrote.
Wu’s office said Boston’s Economic Opportunity & Inclusion Cabinet will be hosting several informational sessions over the next two weeks to educate residents and businesses on what’s happened, what they can do to support those impacted.
Saraya Wintersmith contributed reporting.
