Mark Cuban Calls For Federal Reserve Action After Silicon Valley Bank collapse

Entrepreneur and Dallas Mavericks owner Mark Cuban has called for the Federal Reserve to take immediate action following the collapse of Silicon Valley Bank (SVB) on Friday. The bank’s closure was the worst U.S. financial institution failure since the Great Recession of 2008 and has raised concerns about the stability of the banking system.

Cuban’s proposed solution was for the Fed to buy all the securities and debt the bank owns at near par, enough to cover most deposits. He suggested that any losses should be paid for in equity and new debt from the new bank or whoever buys it. “The Fed knew this was a risk. They should own it,” Cuban tweeted.

He also argued that if the Fed does not take ownership, trust in the banking system could become an issue, particularly with many banks having more than 50% uninsured deposits.

Cuban has no personal money with the bank, but some of his portfolio companies do. He raised a number of questions about the bank and its oversight, finding it baffling that the bank operated as it did and perhaps unsurprising that it failed. Cuban also questioned where the regulators were, saying they were supposed to watch and warn. He added that he can’t wait to see how many people yanked their money, told others to, and shorted the stock.

SVB held a reputation as a go-to for a number of Silicon Valley industries and startups. Y Combinator, an incubator startup that launched Airbnb, DoorDash, and Dropbox, regularly referred entrepreneurs to them. The bank’s collapse was so quick that, hours before its closure, some industry analysts were hopeful that the bank was still a good investment. The bank’s shares had fallen by 60% on Friday morning after a similar drop the day before.

Anxious depositors rushed to withdraw their money over concern for the bank’s health, causing its collapse, which may serve as “an extinction-level event for startups,” according to Y Combinator CEO Garry Tan.

The Bank of England accelerated some of the bank’s problems by announcing on Friday that it would seek a court order to move SVB into an insolvency procedure. “SVB UK has a limited presence in the UK and no critical functions supporting the financial system. In the interim, the firm will stop making payments or accepting deposits,” the Bank of England said.

The closure of SVB has spilled over into other banks, both in the U.S. and abroad, with $100 billion lost in stock revenue domestically and $50 billion in value shed by European banks over the past two days, according to a Reuters calculation.

Cuban insists that his suggested actions for the Fed are not a bailout, but instead “providing cash to end the run” and in turn acquiring “long-dated assets that will pay at maturity.” He stressed that SVB did not buy failing assets and if there had been no run, the bank would have survived.

The collapse of SVB raises important questions about the stability of the banking system and the role of regulators in ensuring that banks operate in a responsible and sustainable manner. It also highlights the importance of diversifying deposits across multiple banks to avoid overexposure to any one institution.

The Fed has not yet responded to Cuban’s call for action, but it remains to be seen whether they will take his advice and intervene in the SVB collapse. Regardless of the outcome, the collapse of SVB is likely to have far-reaching implications for the banking industry and the broader economy.