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SVB collapse: YCombinator issues petition to compensate depositors in full

Following the Silicon Valley Bank (SVB, Y) collapse, YCombinator informed that they are signing a petition for urgent relief and attention to small businesses, startups, and depositors.

Garry Tan, President and CEO of YCombinator informed that the petition has been signed by 650 founders who employ more than 22,000 people.

Tan further noted that about 44% of them are based outside of California.

With the collapse of Silicon Valley Bank (SVB), most YCombinator-backed startups, which typically deposit their initial checks in SVB, are struggling to obtain working capital.

According to a blog by YCombinator, “We are not asking for a bailout for the bank equity holders or its management; we are asking you to save innovation in the American economy.”

There are major issues that are currently impeding the resolution of Silicon Valley Bank’s collapse. There is no potential buyer for the bank. Usually, regulatory authorities search for a healthier bank to acquire the assets of a struggling bank; however, no other bank has expressed interest in this case.

The YCombinator has asked that small business depositors at SVB should be made whole and regulators need to conduct a backstop of depositors.

According to the NVCA, Silicon Valley Bank has over 37,000 small businesses with more than $250,000 in deposits.

“We ask for relief and attention to an immediate critical impact on small businesses, startups, and their employees who are depositors at the bank,” the statement added.

The most pressing issue at hand is the substantial deposits held by Silicon Valley Bank. While the Federal government provides insurance coverage for deposits up to $250,000, anything above this threshold is deemed uninsured.

Nonetheless, the majority of Silicon Valley Bank’s deposits are uninsured, a distinctive attribute of the bank due to its customer base being primarily composed of startups and affluent tech employees.

The blog further read that SVB’s failure has a real risk of systematic contagion which can trigger a bank run on every other small bank.

AngelList’s CEO, Sumukh Sridhara, has revealed that the company has developed a product to provide emergency capital to startups affected by SVB.

Sridhara informed that promissory note with a standard interest rate of 7% for a short-term loan from investors lending to meet urgent needs.

Furthermore, the SVB was a sizable institution, it had a distinct identity as it catered almost exclusively to the technology industry and venture capital-backed firms. The bank was heavily involved with the sector of the economy that was significantly affected over the past year.

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