Examining the Collapse of Silicon Valley Bank and the U.S. Government’s Response
On March 17, 2023, Silicon Valley Bank (SVB) collapsed as a result of multiple factors, including a lack of diversification and a classic bank run.[0] SVB was a major player in the tech sector, offering services tailored to the needs of startups and venture capitalists. It had assets totaling $209 billion at the end of 2022, according to the Federal Deposit Insurance Corporation (FDIC).[1]
Bank deposits of up to $250,000 are insured by the FDIC[2] However, there were a lot of accounts in both SVB and Signature Banks above that threshold.[2] The Treasury Department plan ensures that bank customers will not lose a dime – including their uninsured deposits over $250,000.[2]
SVB lacked the necessary resources to meet the needs of its depositors.[3] Jerome Powell and the Federal Reserve have been raising interest rates, making the situation worse and causing the value of the government-guaranteed mortgages SVB held in reserve to decrease.[3]
The collapse of SVB raises difficult questions about the role of midsize, specialized banks and their risk mitigation.[0] On the other hand, it’s important to recognize the tremendous benefits to specialization that allowed SVB to become such a force for startups. SVB provided financing for about half of all U.S. venture-backed technology and healthcare companies, and it had a major presence in the tech communities of Israel and Europe.[4]
The U.S. government’s response to the collapse—effectively removing the $250,000 cap on deposit insurance while letting lenders borrow relatively cheaply against fictitious asset values—is a reminder of the threats banks use to extract subsidies from the rest of society.[5] It also raises key questions about the structure of the financial system and who the government protects during moments of crisis.[6]
The Federal Reserve has established the “Bank Term Funding Program” (BTFP) which will provide loans of up to twelve months to banks, savings associations, credit unions, and other qualified depository entities who use US Treasuries, agency debt, mortgage-backed securities, and other acceptable collateral as security.[6] Banks will be able to obtain a loan for the full amount of their assets, known as “at par”.[2]
0. “Silicon Valley Bank's Focus on Startups Was a Double-Edged Sword” HBR.org Daily, 17 Mar. 2023, https://hbr.org/2023/03/silicon-valley-banks-focus-on-startups-was-a-double-edged-sword
1. “Silicon Valley Bank: What happened before the collapse” NPR, 15 Mar. 2023, https://www.npr.org/2023/03/15/1163269781/silicon-valley-bank-svb-collapse-history
2. “If It Looks Like a Bailout and Walks Like a Bailout It’s Probably a Bailout” SchiffGold, 16 Mar. 2023, https://schiffgold.com/commentaries/if-it-looks-like-a-bailout-and-walks-like-a-bailout-its-probably-a-bailout/
3. “Student Loan, Bank Bailouts Won't Stop A National Debt Crisis” The Federalist, 16 Mar. 2023, https://thefederalist.com/2023/03/16/student-loan-and-big-bank-bailouts-wont-help-when-the-national-debt-crisis-comes
4. “Silicon Valley Bank collapse explained: What you need to know” TechTarget, 14 Mar. 2023, https://www.techtarget.com/whatis/feature/Silicon-Valley-Bank-collapse-explained-What-you-need-to-know
5. “Thoughts on the Bank Bailouts – by Matthew C. Klein” The Overshoot, 13 Mar. 2023, https://theovershoot.co/p/thoughts-on-the-bank-bailouts
6. “Bank failures conjure up the dreaded ‘b-word': Bailout” CNN, 15 Mar. 2023, https://www.cnn.com/2023/03/15/business/bailout-silicon-valley-bank-signature/index.html
