Customers of the now-defunct Silicon Valley Bank are receiving assurances that their funds are safe and accessible. In addition, in a Monday morning speech delivered from the White House, President Biden reassured customers of the U.S. banking system that it is secure: You won’t have to worry about losing your deposits.
Tiffany Dufu and other tech entrepreneurs are among those clients. She is the CEO and founder of The Cru, a company that assists women in achieving their professional and personal goals. She was scrambling for money late last week to make payroll because her company has money at Silicon Valley Bank.
Dufu told Sacha Pfeiffer on NPR’s Morning Edition that she and many other tech founders don’t fit the stereotypes of Silicon Valley.
Mark Zuckerberg is frequently cited as an example of a tech founder or the tech industry. I am African-American and have two children who are now in school. I’m about 40 now. People who have identified a problem that they want to solve for a customer are founders. In my case, one in four women have thought about quitting their jobs in the past year. We work with their employers to try to make sure they have access to the resources they need.
Dufu contends that she represents a section of the tech investment community that is particularly vulnerable.
“Black female founders receive less than one percent of investment capital in the technology sector.” As a result, this had a significant impact on a lot of underrepresented community founders and leaders. There isn’t much liquidity. We don’t have a lot of resources to use. As a result, this really caused us trouble.”
At the University of Chicago, economist Douglas Diamond focuses on banking systems and the forces that can cause a bank to collapse. He was awarded the Economics Nobel Prize in 2022 for his efforts.
Diamond tells Morning Edition host Leila Fadel, “Banks do their magic by diversifying their asset risks, having lots of different types of loans, and in particular, avoiding an overload at any particular risk,” about an area where Silicon Valley Bank broke basic banking rules. Interest rate risk was the one they overestimated. You should also use a variety of sources of funding.
The bank was particularly susceptible to changes in interest rates as a result of those wagers. SVB was in good shape when rates were low.
“They were going to become insolvent if interest rates increased significantly.”
SVB fell into insolvency late last week as a result of rising interest rates. Diamond asserts that the Federal Reserve Bank may be partially to blame.
“Maybe the Fed ought to have thought, ‘I shouldn’t raise interest rates this quickly if it’s going to wipe out certain parts of the financial system.'”
The failure of Silicon Valley Bank is very personal to Dufu. She felt like she couldn’t wait for the FDIC’s final fix, which would have protected her company’s assets. She needed to pay her payroll.
“I already had to accelerate.” In order to ensure that my team was taken care of, I already needed to figure out how to transfer money from my personal account. Additionally, I am extremely fortunate to have a savings account from which I can draw. It has had a significant impact not only on my mental and physical health but also on everything else we do to keep these businesses thriving and successful.
Source: www.npr.org