Silicon Valley Bank Collapses: FDIC to Guarantee Deposits up to $250,000
This week, Silicon Valley Bank (SVB), a major lender to tech startups, collapsed and was taken over by federal regulators after facing a sudden bank run and capital crisis.[0] Founded over a poker game in 1983, SVB quickly became the bank for the burgeoning tech sector in the area and the people who financed it.[1] It was purported by the bank that they had provided banking services to approximately 50% of all venture-backed startups in the United States as of 2021.[1] Many venture capital firms that provide funding to startups also have banking partnerships with them.[2]
The California Department of Financial Protection and Innovation appointed the Federal Deposit Insurance Corporation (FDIC) as a receiver to the bank, and regulators are working to find a buyer for the institution.[3] The FDIC will guarantee deposits of up to $250,000, depending on the size of the company, but many startups kept far more than that with the bank.
The failure is being blamed on a mismatch between assets and liabilities.[4] The bank catered to tech startups and venture-capital firms, and purchased long-duration bonds, which slumped in price after the Federal Reserve hiked interest rates from nearly zero to upwards of 4.5% in the space of a year.[5]
On Sunday, the Treasury Department, Federal Reserve, and FDIC declared that depositors of Silicon Valley Bank would be able to access all of their funds starting Monday, in an effort to soothe the banking sector and quell anxieties before the stock markets open this week.[6] The FDIC announced that it will cover up to $250,000 per depositor and may be able to begin paying those depositors as early as Monday. It also said it will have recourse beyond that collateral, a likely acknowledgment some of the securities may be impaired.[7]
US authorities are intervening to boost the confidence in the banking system following the collapse of Silicon Valley Bank, but Pershing Square founder Bill Ackman said more banks will likely fail.[8] The Fed’s newly announced Bank Term Lending Program will make loans of up to 12 months to banks and other depository institutions.[4]
Treasury Secretary Janet Yellen said in an interview with “Face the Nation” on Sunday that during the financial crisis, investors and owners of systemic large banks were bailed out, and the reforms that have been put in place means that won't happen again.[9]
Americans should continue to have confidence in their preferred financial institutions in their communities.[6]
0. “FDIC's Takeover of SVB Sparks Bank Runs, BoA & Wells Fargo Fears” TMZ, 11 Mar. 2023, https://www.tmz.com/2023/03/11/fdic-takeover-silicon-valley-bank-run-svb-boa-wells-fargo-deposit
1. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 10 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic
2. “Silicon Valley Bank failure could wipe out ‘a whole generation of startups'” NPR, 11 Mar. 2023, https://www.npr.org/2023/03/11/1162805718/silicon-valley-bank-failure-startups
3. “My Trade Amid SVB's Fall? An ‘Insurance Policy' on BofA I Hope Doesn't Pay Off” RealMoney, 12 Mar. 2023, https://realmoney.thestreet.com/investing/stocks/my-bank-trade-an-insurance-policy-on-bofa-i-hope-doesn-t-pay-off-16118056
4. “What a rescue for SVB depositors means for the stock market and interest rates” MarketWatch, 13 Mar. 2023, https://www.marketwatch.com/story/svb-collapse-means-more-stock-market-volatility-what-investors-need-to-know-b87c962b
5. “‘Big Short' Michael Burry: SVB collapse like dot-com, housing crashes” Markets Insider, 13 Mar. 2023, https://markets.businessinsider.com/news/stocks/big-short-michael-burry-svb-bank-crisis-dotcom-housing-crash-2023-3
6. “Fallout from Silicon Valley Bank collapse to dominate Capitol Hill” The Hill, 13 Mar. 2023, https://thehill.com/homenews/senate/3896695-fallout-from-silicon-valley-bank-collapse-to-dominate-capitol-hill/
7. “Gundlach, Ackman Weigh Fed’s US Bank Rescue Impact on Markets” Yahoo News, 13 Mar. 2023, https://news.yahoo.com/gundlach-ackman-weigh-fed-us-062357431.html
8. “Ackman Says More Banks Will Likely Fail Despite Fed Intervention” Bloomberg, 13 Mar. 2023, https://www.bloomberg.com/news/articles/2023-03-13/ackman-says-more-banks-will-likely-fail-despite-fed-intervention
9. “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
