During a session at Inc. Founders House at SXSW in Austin, the serial entrepreneur explained why he believes the government was right to intervene after Silicon Valley Bank imploded.
Billionaire entrepreneur Jim McKelvey praised the U.S. government’s hasty intervention over the weekend after Silicon Valley Bank collapsed late last week. The co-founder of Square, the publicly listed financial technology company that now goes by the name Block, stressed that the actions taken by the FDIC and Federal Reserve to protect depositors and stabilize the midsize banking industry were necessary.
“Everyone gets pissed when there’s a government bailout, and there are a lot of politicians who make hay saying, ‘Whoa! We shouldn’t bail out the billionaires,'” said McKelvey, who spoke during an interview with Inc. editor-in-chief Scott Omelianuk at Inc. Founders House at the South by Southwest Conference on Monday afternoon. “We bailed out a medium bank and for a very, very good reason.”
The serial entrepreneur, who now serves as the founder and CEO of Invisibly, said that if the federal government did not act, trust in midsize and local banks would erode, leading to further consolidation of the financial industry. That outcome, as McKelvey pointed out to the audience of founders, would not be great for business owners like them.
“Do you want to have only four choices of banks? Or would you like to have hundreds of medium-size banks, local banks? Those would have been wiped out,” he told the crowd. “We got payroll made, and we saved the mid-tier banking. That was because of great people at the Federal Reserve, where I serve, at the Treasury, and at the FDIC.”
McKelvey has a unique insight into the situation, because he serves as the chair of the board of directors for the St. Louis Federal Reserve, which oversees the regional Fed bank. At the event, he even sported a hoodie emblazoned with FRED, the acronym for Federal Reserve Economic Data, which is the online database created and maintained by the St. Louis Fed.
“I’m not on the FOMC. I’m not on the Board of Governors. I’m not one of the guys in the room. I am the chairman of the St. Louis Federal Reserve, which is one of 12 districts. My job is basically to report what’s happening in the Midwest,” he explained. “But I’m thrilled. I am so proud of what they did.”
McKelvey said that the government’s decision to guarantee all accounts at SVB, including those above the $250,000 FDIC-insured threshold, prevented other financial institutions from being able to prey on founders in this dire moment when many were concerned about being able to pay their employees.
“There were a whole bunch of sharks with big bank accounts circling saying, ‘Oh, we’ll help you make payroll. We’ll just take 10 percent of your company right now.’ It was brutal,” he said. “It could have been way worse.”
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