FDIC Takes Control of Silicon Valley Bank After Its Collapse
By
Bryan Jung
March 10, 2023Updated: March 11, 2023
The
Federal Deposit Insurance Corporation (FDIC) has assumed
control of Silicon Valley Bank (SVB) to protect depositors from losing all
of their money after it was closed by the California Department of
Financial Protection and Innovation.
Federal
banking regulators on March 10 took custody of the country’s 16th largest bank,
which was a top lender for American tech and life sciences firms and
start-ups, according
to a press release.
The
collapse of the California bank is the largest bank failure since Washington
Mutual in 2008, during the last major bank crisis.
The
FDIC set up a so-called bridge bank, the Deposit Insurance National Bank
of Santa Clara (DINB), and as the receiver, transferred all of the insured
deposits of SVB there and so all insured assets, up to the $250,000 coverage
limit, are safe and will be accessible to depositors starting March 13.
Although
the main office and all branches of SVB will reopen at the beginning of next
week, the DINB will now control and manage its operations.
The
official coverage limit is $250,000 per depositor, per insured bank, for each
account ownership category, so some depositors could potentially have more than
$250,000 insured.
However,
the FDIC added that it “will pay uninsured depositors an advance dividend
within the next week” and will receive a receivership certificate for the
remaining amount of their uninsured funds.
Future
dividend payments may be made to uninsured depositors, while the FDIC sells off
the assets of SVB.
“The
failure of @SVB_Financial could destroy an important long-term driver of
the economy as VC-backed companies rely on SVB for loans and holding their
operating cash,” warned Pershing Square CEO Bill Ackman in a tweet just
before the bank failure.
Silicon
Valley Lender Was In Trouble For Some Time
It
is unverified how much money was pulled out of SVB yesterday after its
announcement of a $2.25 billion share sale plan sparked a run on the bank.
The
massive interest rate hikes over the past year have caused the value of its
bonds to fall, particularly those that take many years to mature, and forced
the bank to reinvest the proceeds from its sales into shorter-term assets.
SVB
suffered significant losses on its portfolio, which was heavily invested
in U.S. Treasuries and mortgage-backed securities, all of which have taken a
beating.
The
bank’s shares fell more than 60 percent after its March 8 announcement, wiping out $9.4 billion in
market value.
Executives
publicly stated that they would dump $21 billion worth of holdings at a $1.75
billion loss, while raising $500 million from venture firm General Atlantic to
cover rapidly declining customer deposits and bond losses to save the firm.
General
Atlantic has yet to make a comment, only hours after announcing an agreement to
invest $500 million in the now-failed bank.
SVB
CEO Greg Becker told clients earlier this week to “stay calm. That’s my ask.
We’ve been there for 40 years, supporting you, supporting the portfolio
companies, supporting venture capitalists.”
However,
many depositors, along with many of their venture capital backers,
panicked and pulled their money out anyway.
Top
venture capital firms like Coatue and Founders Fund encouraged portfolio
companies to strongly consider pulling money out of SVB, while Sequoia
Capital reiterated its diversification strategy after concerns grew over the
bank’s stability.
The
California lender had approximately $209 billion in total assets and $175
billion in deposits at the end of 2022.
However,
the FDIC said that its current deposit total at this time is “undetermined.”
The
amount of insured and uninsured deposits was undetermined at the time of
closing and will be determined once the FDIC obtains additional information
from the bank and customers.
Some
economists hope that the news will discourage the Federal Reserve from raising
interest rates higher.
The
number of investors saying that the likelihood of the central bank would enact
a 50-basis-point rate increase, declined today, but the February jobs
report could be another factor.
“Lots
of chatter today about the possibility of generalized U.S. banking system
stress due to SVB troubles. Three summary things on this: While the
U.S. banking system as a whole is solid, and it is, that does not
mean that every bank is,” stated economist Mohamed A. El-Erian in a
tweet.
“Due
to the volatility in yields after the prior protracted period of
leverage-enabling policy, the most vulnerable currently are those vulnerable to
both interest rate and credit risk. Contagion risk and the systemic threat can
be easily contained by careful balance sheet management and avoiding more
policy mistakes,” he added.
Connecting
the Dots:
John C. Dugan was
director at the Federal Deposit Insurance Corporation (FDIC),
a comptroller for the Comptroller of the Currency, and is a
partner at Covington & Burling LLP.
Cantwell
F. Muckenfuss III was the counsel to the chairman for the Federal
Deposit Insurance Corporation (FDIC), a senior deputy comptroller for
the Comptroller of the Currency and is a director at the Roosevelt
Institute.
Foundation to Promote Open Society was a funder for
the Roosevelt Institute.
George Soros was the chairman
for the Foundation to Promote Open Society.
and
is Jonathan Soros’s father.
Jonathan Soros is George
Soros’s son and a senior fellow at the Roosevelt Institute.
Paul S. Sarbanes is
a governor at the Roosevelt Institute and was Martin
J. Gruenberg’s senior counsel.
Martin J.
Gruenberg’s senior counsel was Paul S. Sarbanes and is the
chairman for the Federal Deposit Insurance
Corporation (FDIC).
Resources:
Past Research
Targeted?
Gun sellers say ‘high risk’ label from feds cuts off banking options, restricts
business (Past Research on FDIC)
MONDAY,
MAY 19, 2014
https://thesteadydrip.blogspot.com/2014/05/targeted-gun-sellers-say-high-risk.html
Smaller
Bites – Bank of America Corp. (Bailout Company) (Connecting the Dots: Bank of
America Corp. (Bailout Company), The Federal
Deposit Insurance Corporation (FDIC) & The Soros Funded Think Tanks,
All Networking) (Past Research on FDIC)
FRIDAY,
NOVEMBER 11, 2022
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