SVB: Mark Cuban and Bill Ackman Used Their Influence to Corner Regulators

Influential voices from Wall Street and Silicon Valley used social media to urge regulators to rescue Silicon Valley Bank depositors. The strategy worked.

It will go down as one of the most successful lobbying campaigns in financial history.

As soon as U.S. regulators shut down Silicon Valley Bank on March 10, a form of public lobbying to pressure the federal government to save the thousands of depositors of the defunct tech lender started on social media and especially on Twitter.

Whether this pressure campaign was coordinated is difficult to say, but what is certain is that it was led by influential voices from Wall Street and Silicon Valley, including hedge-fund manager Bill Ackman and venture investor David Sacks. 

Tech billionaire and "Shark Tank" star Mark Cuban, who is a household name, was also one of the flag bearers of this unprecedented coalition.

'Where Is Powell? Where Is Yellen?': VC Sacks

Their strength is that they managed to arouse anxiety, fear and even panic by almost evoking images of chaos and disaster, in the event that the authorities chose not to do something dramatic.

"Where is Powell? Where is Yellen? Stop this crisis NOW," Sacks urged on March 10.  "Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread."

The next day, it was Ackman's turn to raise the specter of disaster.

"The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank," Ackman blasted out on Twitter on March 11. 

"The unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below."

While Ackman then indicated that he had no direct exposure to SVB, he did say that he's an investor in some venture, biotech funds and startups "which may have some exposure to SVB. Collectively, my venture exposure is less than 10% of my assets."

A Pressure Campaign for the Startups

Remember that the FDIC took control of SVB  (SIVB) - Get Free Report on March 10 after a run on the bank. The run stemmed from the company's announcement that it planned to raise $2.25 billion by issuing new common and convertible preferred shares to shore up its finances, following the sale of its bonds at a $1.8 billion loss.

The federal agency became therefore the manager of $175 billion in customer deposits, including money from several startups and from some of the biggest names in the technology world.

It created a new entity and indicated that unsecured depositors -- SVB customers with more than $250,000 in their accounts -- would not, for the moment, have access to their money. This announcement left much uncertainty about the ability of many startups to operate in the coming weeks, since their funds were locked up. The FDIC had also said that it would pay uninsured depositors an "advance dividend within the next week."

The question was how much this "advanced dividend" would amount to.

Companies with SVB accounts, lines of credit and credit facilities were wondering what this meant for them, when they would be able to access their funds, whether they would be able to get all their funds out, and whether they would have access to their credit lines. 

The pressure campaign leveraged the desperation of these many companies to hammer home to the regulators that they had no other solution than to guarantee all deposits.

"The tragedy of SVB is that its not the wealthy taking the hit. It's the thousands of companies who borrowed from SVB and were required to keep their cash in SVB. Those entrepreneurs and their employees and vendors are feeling the pain. And they are who the Fed should protect," Cuban urged on Mar. 11.

Cuban said some of the startups in his portfolio, including online pharmacy CostPlus Drugs.com which he co-founded, had deposits of about $8 million to $10 million blocked in SVB.

"And for the record I have zero personal funds there, although several of my portfolio companies do. Probably all in about 8 to 10m dollars. So I can help them. But it's the other 200b and how many employees and vendors ? I'm concerned about them."

'Guarantee All Deposits by Sunday Night': Ackman

The social-media lobbyists were then more specific about the remedy to avert a further deterioration of the crisis: a pure and simple bailout. That's even if they did not want to call it a "bailout" because the word is politically sensitive. During the 2008 financial crisis, the big banks were saved with taxpayers' money despite the fact that the companies had made bad choices and took inordinate risks.

"What should the FDIC do? @FDICgov to guarantee all bank deposits by Sunday night before Asia open and call a time out. Run a process to recapitalize @SVB_Financial," Ackman suggested. 

"FDIC develops a new guarantee regime where large dollar deposit insurance is made available up to sensible limits per account to accommodate business borrowers while 100% guarantee remains in place. Once new deposit insurance regime is employed, 100% guarantee is removed."

Sacks came out on defense on March 12: "I’m not asking for a bailout. I’m asking for banking regulators to ensure the integrity of the system. Either deposits in the US are safe or they’re not. If not, look out below. We have a very big problem on our hands," 

"SVB’s customers are being treated like they engaged in some incredibly risky behavior for which they’re being unfairly bailed out. But all they did was open a bank account! That’s not an investment, it’s a deposit."

Cuban used almost the same language, defending himself from arguing for a bailout. 

"And this isn't a bailout. The Fed effectively is providing cash to end the run, and in return getting long dated assets that will pay at maturity, and for the risk assets, should offer some positive return as well. SVB didn't buy failing assets. No run, and they survive."

Besides tweeting and interacting with Twitter users, they also participated in conversations on Twitter Spaces. Up to the last minute, social media lobbyists kept the pressure on the regulators.

"The startup economy actually needs speed and certainty more than it needs full insurance. If the Fed announced 85 cents on the dollar available Monday, startups would survive," Sachs tweeted a few hours before the regulators made their announcement. "It’s the rest of the economy that will suffer when the run on the regional banking system begins."

A few hours later the FDIC, the Federal Reserve and the Treasury Department unveiled a plan guaranteeing that all depositors would be able to receive all their money on Mar. 13. 

In addition, the Fed created a backstop for banks to avoid a liquidity crisis. This is more than the social-media influencers/lobbyists were asking.

The three influencers, however, did not celebrate their historic victory. They have a new battle now: pushing to change the $250,000 limit for FDIC-insured deposits. They're less passionate about this proposal.

"I'm not saying free unlimited FDIC coverage. Never. But creating accounts that are fully insured, with the associated necessary premiums, or some equivalent, is a necessity," Cuban said on March 13.