Silicon Valley Bank Collapse: FDIC Intervention & Concerns of Systemic Financial Instability
Silicon Valley Bank, a key lender to many of the world’s most powerful tech investors, collapsed on Friday and was taken over by the Federal Deposit Insurance Corporation (FDIC). This marks the second-largest failure of a financial institution in US history since the 2008 Global Financial Crisis.[0]
Over 90 percent of Silicon Valley Bank's deposits exceed the $250,000 amount federally guaranteed by the FDIC, meaning those people may never see their money again, or may lose substantial amounts.[1]
The bank’s downfall was tied, in part, to the plunge in the value of bonds it acquired during boom times, when it had a lot of customer deposits coming in and needed somewhere to park the cash.[2] The Federal Reserve’s aggressive interest rate hikes further exacerbated the problem.[3]
The collapse of Silicon Valley Bank sparked worries about the potential of spreading financial instability damaging the economy much like what happened when Lehman Brothers collapsed in 2008.[4]
Elon Musk has indicated that he is “open to the idea” of buying Silicon Valley Bank, as he lays the groundwork for Twitter payments.[5] However, no further information was provided.[6]
The FDIC is now acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.[7]
The other major Silicon Valley bank to collapse within days was Silvergate, the preferred bank of crypto and itself a darling of venture capital. This has further heightened concerns about the stability of the U.S. financial system and whether taxpayers will incur losses due to the government’s intervention.
0. “SVB doom not seen causing big ripple effect on economy” MarketWatch, 13 Mar. 2023, https://www.marketwatch.com/story/svb-doom-not-seen-causing-big-ripple-effect-on-economy-8103ea
1. “Silicon Valley Bank Used Former McCarthy Staffers to Weaken Regulations, Lobby FDIC” The Intercept, 12 Mar. 2023, https://theintercept.com/2023/03/11/silicon-valley-bank-used-former-mccarthy-staffers-to-weaken-regulations-lobby-fdic/
2. “The End of Silicon Valley (Bank) – Stratechery by Ben Thompson” Stratechery by Ben Thompson, 13 Mar. 2023, https://stratechery.com/2023/the-death-of-silicon-valley-bank/
3. “Republicans Have Found a Culprit for SVB’s Collapse” The Atlantic, 13 Mar. 2023, https://www.theatlantic.com/ideas/archive/2023/03/republicans-svb-collapse-wokeness-esg-dei/673378/
4. “The tech industry avoided an ‘extinction-level event,' but it's not unscathed” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/13/tech/tech-industry-relief-silicon-valley-bank/index.html
5. “Mark Cuban urges Fed to buy Silicon Valley Bank debt ‘immediately,’ says it’s ‘not the wealthy taking the hit’” Fortune, 11 Mar. 2023, https://fortune.com/2023/03/11/mark-cuban-fed-buy-silicon-valley-bank-debt-immediately-not-wealthy-taking-hit/
6. “Elon Musk just said he's ‘open to the idea' of buying Silicon Valley Bank after its collapse — but is he serious? Here are …” Yahoo Sports, 13 Mar. 2023, https://sports.yahoo.com/elon-musk-just-said-hes-133500538.html
7. “What to know about the spectacular collapse of Silicon Valley Bank” NPR, 10 Mar. 2023, https://www.npr.org/2023/03/10/1162599556/silicon-valley-bank-collapse-failure-fdic-regulators-run-on-bank
