Summers: Impact of SVB Collapse ‘Will Be Quite Severe for our Innovation System’ Unless Government Can Ensure Payrolls Are Met 

During an interview aired on Friday’s edition of Bloomberg’s “Wall Street Week,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton Larry Summers stated that unless the situation is worked out, the Silicon Valley Bank (SVB) collapse “certainly is going to have very substantial consequences for Silicon Valley and for the economy of the whole venture sector, which has been dynamic,” and said that the government will have to ensure that companies that have uninsured deposits they relied on to meet payrolls can do so or else, “the consequences really will be quite severe for our innovation system.”

Summers said, “I don’t think this is likely to be a broadly systemic problem, but it certainly is going to have very substantial consequences for Silicon Valley and for the economy of the whole venture sector, which has been dynamic, unless the government is able to assure that this situation is worked through.”

He added that “There are dozens, if not hundreds of startups” who were planning on using uninsured deposits “to meet their payroll next week. If that’s not able to happen, the consequences really will be quite severe for our innovation system. I suspect that ways will be found to at least provide significant advances on those deposits to enable the payment of payrolls. I think the FDIC is going to have to think very hard about how to be maximally creative in using its authorities to assure that this doesn’t have a set of collateral consequences for the innovation economy. I don’t think this is a time for moral hazard lectures or for talk about teaching people lessons. We have enough strains and challenges in the economy without adding the collateral consequences of a breakdown in an important sector of the economy.”

Follow Ian Hanchett on Twitter @IanHanchett