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U.S. Government Steps In To Backstop Silicon Valley Bank, Billion-Dollar Lender To The Wine Industry

March 13, 2023

The sudden failure of Silicon Valley Bank (SVB), a billion-dollar lender to the wine industry, sent shockwaves through the business late last week, causing concern among depositors, those with loans through the bank, and industry observers wary of the longer term effects to doing business in wine country.

Yesterday, the federal government stepped in, with a joint statement by the Treasury, Federal Reserve, and FDIC stating that the FDIC will “complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.” The statement added that similar protection is in place for New York-based Signature Bank, which was closed yesterday by the state chartering authority.

With about 400 wine clients, Silicon Valley Bank has made $4 billion in loans to the wine industry over the past three decades, with more than $1 billion outstanding at year-end. But it was SVB’s ties to the tech industry and venture capital that led to its undoing, as the bank announced in a surprise filing last Wednesday that it had sold $21 billion of assets as it looked to cover withdrawals stemming from the tech industry’s cash crunch.

Rob McMillan, founder and executive vice president of SVB’s wine unit, wrote in a blog post, “The wine industry had nothing to do with this. This event was an unnecessary fear-based collapse that the Venture Capital industry participated in and is having second thoughts about. One hundred fifty nine VCs are trying to make their voices heard on this disturbing collapse—albeit a little late.” He added that SVB failed over a run on deposits, not loan problems, and that “as far as I could tell, the whole business was doing well. Today, in the blink of an eye this is the second-largest bank failure in the history of the U.S. It’s hard to fathom.”

Beyond guaranteeing deposits, regulators are attempting to find a buyer for SVB, with interested parties including PNC, CNBC reported, but no deal had emerged at press time. However, HSBC has agreed to purchase SVB’s U.K. subsidiary.

Within the wine industry, the concern is that the fall of SVB will delay and tighten overall lending to the business, with smaller wineries and vineyards seeing the most impact. While the loans already on the books would pass to another institution if SVB is acquired, the bank’s in-depth knowledge of the industry will be a loss moving forward. For the moment, eyes will be on whether a potential deal for SVB will still come to fruition, with no small measure of the wine industry’s financial flexibility hanging in the balance.—Daniel Marsteller

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