Silicon Slopes could have avalanched. Here’s why banking could change in Utah.

Sens. Mike Lee and Mitt Romney praised the Biden administration’s decision to ensure deposits held at the bank would be accessible.

(Chris Samuels | The Salt Lake Tribune) A Silicon Valley Bank branch in Cottonwood Heights, Monday, March 13, 2023.

Before the U.S. government announced Sunday that it would ensure all Silicon Valley Bank clients had access to their money, Utah was preparing to help local companies with assets tied up in Silicon Valley Bank if the federal government didn’t, Gov. Spencer Cox said at a town hall Monday.

“If the Feds didn’t step up, the state would have, and tried to find ways ... to make sure that we’re helping those who are struggling, and especially the payroll piece — that’s really important to us,” Cox said. “We knew that hundreds of businesses were impacted, and that means thousands and thousands of employees would have been impacted, and it could have been devastating to our state.”

The Republican governor said he joined forces over the weekend with state legislative leaders, Utah’s congressional delegation and representatives from state banks and the tech community to come up with a plan.

“The state looked at various options to backstop financial institution loans,” Ryan Starks, the executive director of the Governor’s Office of Economic Opportunity, told The Salt Lake Tribune in an email. “The state wanted to support the private sector in addressing the major financial concerns by providing confidence to lenders.

“In a similar future situation, the state would continue to seek private-sector solutions while exploring a variety of government tools and services,” Starks explained. “An example of the state’s involvement could include creating a webpage and facilitating critical information to businesses.”

Many technology startups, like those in Utah’s Silicon Slopes, banked with Silicon Valley Bank because it offered leverage sprouting companies couldn’t access elsewhere. The bank was hyper-focused on that sector, which in part led to the second-largest bank failure in U.S. history.

Gavin Christensen, the founder of Utah’s first seed fund, Kickstart Fund, estimated during the town hall that half of the Beehive State’s startups were directly impacted by the bank’s failure. And if the federal government hadn’t offered financial relief, Christensen said all of the state’s startups would have suffered.

[Read more: Zions’ stock plummets in wake of SVB collapse, but here’s why Utah bank’s CEO says your money is safe]

“There was dozens of entrepreneurs that were looking at funding payroll out of their own bank accounts if they weren’t stuck, not taking payroll, laying off,” Christensen said.

Now that federal agencies like the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation have stepped in to control the damage left in the wake of Silicon Valley Bank’s failure, Utah is looking at making changes to prevent a similar disaster from happening here.

The commissioner of the Utah Department of Financial Institutions, which is responsible for regulating the state’s financial institutions, said that while the state will “rally around our banks,” it will also “put policies and procedures in place to look at these risks.”

“Banks are in a business of risk, that’s why they earn money,” Commissioner Darryle Rude said. “And the companies that they serve are also taking on risks. So they’ll have to reevaluate how they do their business, and hopefully we can all work together and come up with a reasonable risk level that keeps the public satisfied.”

When asked about the “policies and procedures” it might put in place, a spokesperson for Cox referred The Tribune to Starks.

“The Utah Department of Financial Institutions works closely with national government and bank leaders and is dialed into current financial policies. As the federal government responds to the SVB situation, Utah will watch closely and make any needed adjustments,” Starks wrote.

Among the bank holding companies that have been seen as at-risk by analysts in recent days is Zions Bancorporation, the parent company of Zion’s Bank. Its stock hit a 52-week low Monday morning at $22.55 after closing at $40.35 Friday.

The company’s CEO, Scott Anderson, tried to boost confidence in the bank during the Monday town hall, saying that although it has grown rapidly in recent years, that expansion has not been as aggressive as the growth at Silicon Valley Bank and Signature Bank, which closed Sunday. Similar to Silicon Valley centering its service on the startup and tech industry, Signature was focused on cryptocurrency.

Anderson added that Zions Bank’s clientele is more diverse and that its deposits are more “granular,” meaning it has a larger number of smaller amount deposits. According to Anderson, Silicon Valley Bank’s average deposit account balance was 22 times the size of the average deposit balance at Zions Bank, and only 5% of Silicon Valley’s accounts were fully insured, versus around half being fully insured at Zions.

Reaction from the federal delegation

Utah’s U.S. Sens. Mike Lee and Sen. Mitt Romney joined the town hall to share their take on federal actions to mitigate the shockwaves from Silicon Valley Banks’ failure.

They agreed that President Joe Biden’s administration took the “right step” in making sure all deposits held at the bank would be accessible.

“With social media out there, you can you can start a run on something and do something which is irrational, but real,” Romney said, comparing the bank run that led to Silicon Valley’s failure to the toilet paper shortage during the early days of the COVID-19 pandemic. “And I believe that the Fed took the right steps, and the FDIC did, the administration did.”

Lee called the federal government’s moves “a big relief,” after saying, “I do look forward to hearing what the plan is by the regulators moving forward to make sure things like this don’t happen in the future.”

The junior senator and former presidential candidate also pointed a finger at regulators, saying, “I think it’s fair to say that either the regulations or the regulators didn’t provide the warning that was necessary.”

When Romney ran for president in 2012, one of his platforms was repealing the Dodd-Frank Wall Street Reform and Consumer Protection Act, which imposed further regulations on U.S. financial institutions in the aftermath of the Great Recession. Lee, and the rest of Utah’s federal delegation at the time, voted to roll back many of the measures included in the act in 2018.

A number of Democratic lawmakers are blaming the Trump-era rollback for Silicon Valley Bank’s failure. It raised the asset threshold at which banks would have more strict “stress test” standards from $50 billion to $250 billion, making the rule apply to only a handful of the country’s largest banks.

“Greg Becker, the chief executive of Silicon Valley Bank, was one of the ‌many high-powered executives who lobbied Congress to weaken the law,” Sen. Elizabeth Warren, D-Massachusetts, wrote in an op-ed for The New York Times on Monday.

Anderson, the Zions Bank CEO, also advocated for parts of the law to be repealed. In op-eds published by the Deseret News in 2015 and 2017, he called Dodd-Frank measures “overregulation.”

“Customers won’t trust banks with their money if they don’t keep that money safe. Those are powerful incentives for banks to act responsibly, without heavy-handed regulation,” Anderson wrote in 2017.

In a statement Sunday, Biden said he is “firmly committed to holding those responsible for this mess fully accountable.” Where the two senators sit on accountability measures is yet to be determined.

Lee didn’t offer insight into his position, saying he has no idea what the administration is contemplating. Romney urged those at the virtual town hall to not “assume from the outset that somehow there were some bad actors here, people that need to be punished.”

“If there were some bad actors that did bad stuff, hey, that’s gotta be punished,” Romney said. “But you know, the politics and the punishments, let’s put that aside for now and try and figure out how we make sure that we can support the businesses in Utah and across the country.”