Silicon Valley Bank Collapses, FDIC Steps In to Assist Depositors
On Friday, March 10th, 2023, the California Department of Financial Protection and Innovation closed Silicon Valley Bank (SVB), appointing the Federal Deposit Insurance Corporation (FDIC) as receiver.[0] This was the second-largest bank failure in U.S. history and a huge blow to the tech industry, where SVB had become a fixture in the venture capital space for decades.
The company had announced a plan on Wednesday to raise billions in capital to cover big losses, sparking widespread panic among investors and tech founders. Shares of the company fell by around 60% in Thursday trading and another 20% in aftermarket trading, and were halted at the open on Friday.[1] Hours later, amid reports that SVB was struggling to attract buyers in a sale, the government intervened.[1]
The FDIC will cover up to $250,000 per depositor and may be able to begin paying those depositors as early as Monday. The majority of SVB's customers were businesses that had stored huge amounts of money at the bank without insurance, leading to worries about how to reclaim the remaining money.[2] Uninsured depositors will receive an advance dividend within the next week, as well as “certificates” accounting for their uninsured funds.[3]
Treasury Secretary Janet Yellen declared on Sunday that the federal government will not be issuing a bailout to the investors of Silicon Valley Bank, which was recently shut down suddenly. She did say, however, that the financial regulators are worried about the effect this closure will have on depositors and measures are being taken to meet their requirements.[4]
The cause of the bank's collapse was a combination of a garden-variety bank run and a capital crisis, accelerated by a high concentration of large uninsured deposits.[5] Risk management and regulatory supervision both experienced failures.[5] Banks have yet to recognize about $620 billion of losses in market value caused by rising interest rates.[5]
The collapse of SVB is a major blow to the tech industry, where the bank had become a fixture in the venture capital space for decades. With the FDIC providing insurance for up to $250,000 per depositor, much of the public is likely to receive their money back, but those with deposits in excess of the FDIC limits may have difficulty recovering their funds. The FDIC is working to help address the needs of depositors and other customers of Silicon Valley Bank.[6]
0. “Here's how much of your bank deposits are FDIC protected” The Washington Post, 11 Mar. 2023, https://www.washingtonpost.com/business/2023/03/10/faq-fdic-insurance
1. “Silicon Valley Bank had no official chief risk officer for 8 months while the VC market was spiraling” Fortune, 10 Mar. 2023, https://fortune.com/2023/03/10/silicon-valley-bank-chief-risk-officer
2. “Treasury Secretary Janet Yellen says U.S. government won't bail out Silicon Valley Bank” CNBC, 12 Mar. 2023, https://www.cnbc.com/2023/03/12/treasury-secretary-janet-yellen-says-us-government-wont-bail-out-silicon-valley-bank.html
3. “‘There's going to be more': How Washington is bracing for bank fallout” POLITICO, 12 Mar. 2023, https://www.politico.com/news/2023/03/12/silicon-valley-bank-fallout-washington-00086662
4. “Yellen rules out bailout for Silicon Valley Bank: “We're not going to do that again”” CBS News, 12 Mar. 2023, https://www.cbsnews.com/news/janet-yellen-silicon-valley-bank-bailout-face-the-nation-interview-today-2023-03-12/
5. “Opinion: What SVB's shocking collapse means for the tech industry — and the US” CNN, 11 Mar. 2023, https://www.cnn.com/2023/03/11/opinions/svb-tech-industry-government-intervention-duffie/index.html
6. “Silicon Valley Bank – The Aftermath. Which Companies Were Impacted?” TipRanks, 12 Mar. 2023, https://www.tipranks.com/news/silicon-valley-bank-the-aftermath-of-the-closure-and-impacted-companies
