The texts and e-mails began trickling into state economic secretary Yvonne Hao last Thursday morning. Her friends in the startup and venture capital world, where she had spent most of her career before joining Governor Maura Healey’s administration, worried that Silicon Valley Bank might be in trouble.
SVB had been the main bank for PillPack, the high-flying online pharmacy where she served as chief financial officer and chief operating officer, before the Somerville startup was sold to Amazon in 2018.
By Friday, federal regulators had shuttered SVB, making it the second-largest bank failure in US history. Hao’s first reaction bordered on disbelief.
“If you’re from the venture startup world, Silicon Valley Bank is pretty ubiquitous, and never did I think that a) it would fail and that b) it would fail so quickly,” she said. “From there, it was kind of all hands on deck.”
As the bank’s customers desperately tried to pull their money out, Hao ― along with city and state officials ― scrambled to come up with contingency plans to help the scores of Massachusetts startups, nonprofits, and other businesses that had money tied up in SVB. Many had to pay bills and meet payroll in the coming days.
Led by Hao, officials worked all weekend on a Plan B. Ultimately, the Federal Deposit Insurance Corporation engineered a rescue, by guaranteeing all deposits, even those in excess of the agency’s $250,000 guarantee.
But that was far from a sure thing last Friday, so city and state officials did what they could in an effort to mitigate the potential financial disaster. They cobbled together about $50 million in emergency loan funds and lines of credit, and engaged Attorney General Andrea Campbell’s office to determine whether it was possible to waive state-mandated penalties for employers who could not meet payroll. The short answer: No, but the attorney general had wiggle room when it came to enforcement.
Meantime, the task fell to Healey, Boston Mayor Michelle Wu, and members of the congressional delegation to make the case to the White House and US Treasury officials that SVB’s failure would have an outsized impact on Massachusetts. While headquartered in California, the bank had not only embedded itself in the local innovation ecosystem, but its 2021 acquisition of Boston Private Bank & Trust had deepened its ties with the region’s nonprofits, charter schools, and affordable housing developers. Many of them relied on Boston Private for financing.
The congressional delegation took its cues from Senator Elizabeth Warren, one of the country’s foremost bankruptcy experts and a member of the Senate Committee on Banking, Housing, and Urban Affairs. The delegation, like city and state officials, spent the weekend on Zoom calls trying to avert an economic disaster, one that Hao estimates could have led to the layoffs of tens of thousands of people statewide, and changed the governor’s economic development strategy.
“I would argue that our economy in Massachusetts is the most susceptible to SVB,” said Representative Jake Auchincloss, a Newton Democrat whose district includes two of the bank’s branches. “It’s not just our biotechs and our techs, it’s also our affordable housing developers and our nonprofits. It’s like this unique cross-section of all of the elements that make Massachusetts vital.”
Auchincloss was at Reagan National Airport in Washington, D.C., on Friday waiting for a flight to Boston when news broke about Silicon Valley Bank’s closure. His phone began blowing up with texts and calls.
“This is when you realize, as a member of Congress, how many people have your cellphone number,” said Auchincloss. “Basically, from there on out for the next 48 hours, it was ‘Team Massachusetts.’”
Like the California delegation, Massachusetts’ elected officials kicked into high gear. Besides Auchincloss and Warren, that included Katherine Clark, the second highest-ranking Democrat in the House; Stephen Lynch, a member of the House Committee on Financial Services; Representative Seth Moulton; and Senator Ed Markey.
Back in Boston, City Hall began fielding calls from the bank’s customers. It reached out to local institutions to gauge the effect of SVB‘s implosion. It didn’t take long to figure out that an economic crisis was in the making, one that threatened a broad swath of the city from grassroots nonprofits to a bus line company.
“This was way more than tech bros,” said Segun Idowu, the city’s chief of economic opportunity and inclusion. “This was hitting pretty much all sides of the city.”
Wu and many members of her Cabinet ― including housing chief Sheila Dillon, chief financial officer Ashley Groffenberger, chief of staff Tiffany Chu, and chief policy adviser Mike Firestone ― were on Zoom calls all weekend long, working closely with the Healey administration, including Lieutenant Governor Kim Driscoll, Labor Secretary Lauren Jones, and Housing Undersecretary Jennifer Maddox.
Leaders of quasi-public agencies also played key roles, including Kenn Turner at Massachusetts Life Sciences Center, Larry Andrews at Massachusetts Growth Capital Corp., Dan Rivera at MassDevelopment, Carolyn Kirk at the MassTech Collaborative, and Charlie Hipwood at MassVentures.
Wu, whose relationship with some parts of the business community has been frosty, took calls from worried entrepreneurs. Her phone was buzzing all weekend, even as she juggled previously scheduled appearances. The mayor even squeezed in a call backstage Saturday night at New England Conservatory’s Jordan Hall moments before she was to perform a live reading with the Boston Gay Men’s Chorus.
For guidance, Wu leaned on Warren, whom she first met when Warren was her professor at Harvard Law School.
“She was great about laying out what the pathways were and her best sense of what was happening in real time, and I was able to share that with many of our contacts locally,” said Wu.
Still, the city and state officials weren’t sure whether the FDIC would step in by Monday to stem the growing panic by promising to make the bank’s customers whole.
In the event it didn’t, Hao and Idowu stayed focused on a worst-case scenario, Wu said, working on ways “the city and the state could partner alongside our local ecosystem and business ecosystem to step in and provide some of the relief, especially for organizations who needed to make payroll immediately or had even missed it.”
The city also had the option of making a bridge loan program available through the Boston Planning & Development Agency. Hao found ways to redirect resources from the state’s quasi-public agencies to assemble $50 million in emergency funding.
Starting early Sunday morning, Hao convened meetings ― sector by sector from leaders of regional banks to life sciences companies — to figure out what was needed or how they could help. Hao learned that some banks had already started to prepare for a potential influx of Silicon Valley Bank customers by making it easier to set up accounts and get short-term loans.
On Sunday afternoon, there was another call involving city and state officials, as well as members of the Massachusetts Congressional delegation. By the end of the call, there was a sense that the FDIC would indeed act.
At 6:15 p.m., just before the financial markets opened for the week in Asia, Treasury secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chairman Martin Gruenberg issued a statement saying that the government would fully protect all of Silicon Valley Bank’s depositors.
Hao said she is grateful for the federal intervention, but she also was impressed by the way local and state officials acted when the prospect of a major financial debacle seemed all too real.
“When times are good, it’s easy for everyone to high-five and feel good about themselves. When things get tough, that’s when you really test the team, and you see what people are made of and you see people stepping up,” she said. “We got tested.”
But Hao remains worried about the health of the state’s so-called innovation economy. Investors are spooked, money will be harder to come by, and the state will need to find more ways to support startups. She is most worried about funding for medium-sized companies with about 50 to 200 people that have not yet turned a profit.
“There are a lot of startups in that middle group,” said Hao. “Those are the next generation of home runs from Massachusetts.”
Similarly, Auchincloss, the Newton congressman, isn’t ready to declare victory. He, along with Warren, Markey, Lynch, and representatives Ayanna Pressley and Jim McGovern, on Tuesday joined as original cosponsors of legislation to repeal the 2018 rollback of Dodd-Frank protections that they believe would have prevented the current banking crisis.
“It is too early to watch the game film on this,” said Auchincloss. “We’re still on the field right now.”
Shirley Leung is a Business columnist. She can be reached at firstname.lastname@example.org.