The promised government bailout of Silicon Valley Bank (SVB) depositors could benefit Chinese tech startups, which often use SVB accounts to access U.S investor funding, according to multiple reports.
President Joe Biden reiterated Monday morning that customers of SVB, which collapsed on Friday in the second biggest bank failure in American history, would “have access to their money” following the Treasury, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) announcement Sunday night that the government would fully protect “all depositors.” Some of SVB’s deposit holders are China-based startup companies that often held money at the bank prior to bringing it into China, the Financial Times reported.
The FDIC, which normally only protects clients with balances up to $250,000, opted to insure all in this case to mitigate “systemic risk” to the U.S. banking system, the joint announcement said.
SVB shares dropped 60% on Thursday, prompting the FDIC to take over. By the time it was Friday morning in China, it was difficult for companies to pull out their money. “It’s very crazy, we didn’t think this could happen,” a Beijing-based tech company founder with $10 million in SVB told FT.
SVB was a popular option for Chinese startups looking to access funding from U.S. investors because they could open an account there in a week, while an account with mainstream banks could take 3-6 months, a Chinese startup founder told CNBC. SVB even allowed a Chinese mobile number to be used in the online verification process to open a new account, an anonymous source told the outlet.
Now Chinese start-ups are scrambling to find alternatives to SVB, which functioned as the main foreign bank for these companies, according to Reuters. A Chinese investment bank investor told the outlet that “no other bankers in the U.S. provide the level of services SVB used to offer.”
In 2012, SVB partnered with the Shanghai Pudong Development Bank (SPDB) to found a joint venture, SPD Silicon Valley Bank Co., which focused on providing services to tech startups, according to SVB. SPDB reassured its clients on Saturday, saying it is stable and operates an independent balance sheet, the South China Morning Post reported.
The decision to protect all depositors will also make whole over 1,500 climate-related startups that will soon receive subsidies under the Inflation Reduction Act (IRA), according to The New York Times.
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Republished with permission from Daily Caller News Foundation