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Customers of now-collapsed Silicon Valley Bank are told their money is protected and accessible. And speaking Monday morning from the White House, President Biden assured bank customers that the broader American banking system is safe: “Your deposits will be there when you need them.”
These clients include tech entrepreneurs like Tiffany Dufu. She is the founder and CEO of The Cru, a startup that helps women achieve their personal and professional goals. Her company has its money in Silicon Valley Bank, and at the end of last week she found herself scrambling for the funds to make payroll.
Speaking on NPR’s Morning Edition, Dufu told Sacha Pfeiffer that she and many other tech founders don’t fit Silicon Valley stereotypes.
“I think sometimes when people think of a tech founder or the tech sector, they think of Mark Zuckerberg. I’m African-American and I have two school-aged children. I’m in my mid-40s. Founders are people who have a problem they’ve identified that they’re trying to solve for a consumer.In my case, one in four women have considered leaving their job in the past year, and we’re working with their employers to try to ensure , that they have access to the resources they need.”
Dufu claims she represents a particularly vulnerable segment of the technology investment community.
“Less than 1% [of tech sector investment capital] goes to black female founders. So there are a lot of underrepresented founders and leaders in this community who were hugely impacted by this. There is not much liquidity. We do not have large assets to draw on. And so this really created a crisis for us.”
Douglas Diamond, professor of economics at the University of Chicago, focuses on banking systems and the forces that can lead to a bank’s collapse. That work earned him the Nobel Prize in Economics in 2022.
Pointing to one area where Silicon Valley Bank violated basic banking practices, Diamond told Morning Edition host Leila Fadel, “Banks do their magic by diversifying their asset exposures, having lots of different types of loans, especially to avoid an overload at any particular risk . The one they read too much into was interest rate risk. You’re also supposed to use diversified sources of funding.”
These gambles made the bank particularly vulnerable to interest rate fluctuations. When rates were low, SVB was in solid shape.
“If interest rates went up a lot, they would become insolvent.”
Interest did go up and late last week SVB fell into insolvency. Diamond says some of the blame may lie with the Federal Reserve Bank.
“Maybe the Fed should have thought, ‘I shouldn’t raise interest rates so quickly if it’s going to wipe out certain parts of the financial system'”.
For Dufu, the failure of Silicon Valley Bank is distinctly personal. She felt she could not wait for the final resolution from the FDIC that ensured her company’s assets would be protected. She had a payroll to meet.
“I already had to step into gear. I already had to figure out how to transfer money from my personal account to make sure my team was taken care of. And I’m a very lucky person that in at least have a savings account that I can draw on. [It’s had] a huge impact on just my well-being, my health and my sanity, let alone everything else we already do to keep these businesses thriving and successful.”
The audio version of the interview with Tiffany Dufu was produced by Destinee Adams and edited by Kelley Dickens. The interview with Douglas Diamond was edited by Alice Woelfle.