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It’s been a tumultuous few days for banks since the now-shuttered Silicon Valley Bank announced Wednesday it had suffered a $1.8 billion after-tax loss and urgently needed to raise more capital to quell depositors’ concerns.
By Friday, SVB’s chances of getting access to more funding appeared paper thin. That led the Federal Deposit Insurance Corporation to take over the bank after failed attempts to sell it to healthier banks.
The FDIC announced Friday afternoon that customers who had up to $250,000 per account deposited with SVB, which was the nation’s 16th-largest bank, would have access to their funds by Monday morning. But it wasn’t known at the time what would happen to deposits that exceeded $250,000, the limit the FDIC insures in the event of a bank failure.
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Over the weekend, the Federal Reserve, Treasury Department and FDIC announced that SVB and Signature Bank’s failures posed a big enough risk to the entire banking system that it merited allowing regulators to take the unusual step of guaranteeing the larger deposits.
But the saga doesn’t end there. Here’s what we know so far:
Why did SVB fail?
Silicon Valley’s customers, who were largely startups and other tech-centric companies, started becoming needier for cash over the past year. That led them to withdraw money from their accounts.
SVB meanwhile needed to keep selling its assets, mainly bonds, at a loss to free up capital so that customers could withdraw funds. But the bank got to a point where the losses were so high, customers began to fear SVB couldn’t guarantee access to every customer’s funds. That fueled a massive bank run which caused the FDIC to step in.
–Elisabeth Buchwald
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How much did SVB have in deposits?
As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits, according to the FDIC on Sunday.
“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined,” it said.
–Medora Lee
Who is buying Silicon Valley Bank?
Early reports suggested PNC Financial, JPMorgan and Royal Bank of Canada were among the suitors for the failed SVB bank, but more recent reports have said PNC has declined and interest from RBC has cooled.
For a mid-sized regional bank, “buying the whole bank would be a very large transaction and a big shift in focus to one area although Silicon Valley is known for very strong relationships in this business,” wrote Vivek Juneja, JPMorgan analyst.
As for Signature Bank, Juneja noted “Signature Bank had ties to the crypto industry, which may limit its appeal to…potential buyers.”
—Medora Lee
Etsy payments delayed
E-commerce company Etsy, which delayed payments to about 0.5% of its active sellers on Friday after SVB’s collapse, said in a statement that it was working to pay those sellers Monday.
“We’ve already started processing payments via another payment partner this morning,” the statement reads. “Supporting our sellers is our highest priority, and we understand how important it is for these small businesses to be able to receive their funds when they need them.”
–Bailey Schulz
Largest bank failures in U.S. history?
The top three bank failures in U.S. history are:
- Washington Mutual, Seattle, Washington: in 2008, with nominal assets at time of failure of $307 billion.
- Silicon Valley Bank (SVB), Santa Clara, California: in 2023, with nominal assets of $209 billion.
- Signature Bank, New York, New York: in 2023, with nominal assets of $118 billion.
–Medora Lee
Biden blames Trump for SVB failure
President Joe Biden pointed fingers at the Trump administration for the collapse of SVB.
“During the Obama-Biden administration, we put in place tough requirements on banks like Silicon Valley Bank and Signature Bank, including the Dodd-Frank Law, to make sure the crisis we saw in 2008 would not happen again,” he said during a White House address on Monday.
“Unfortunately, the last administration rolled back some of these requirements,” he said, referring to measures former President Donald Trump signed into law in 2018 aimed at helping small and midsize banks compete with larger banks by easing restrictions
“I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely that this kind of bank failure will happen again and to protect American jobs and small businesses.”
–Elisabeth Buchwald
Biden says taxpayers won’t foot bill for SVB, Signature Bank
Biden also said that the banking system is safe and Americans can access their deposits after federal regulators took over the two failed banks.
“Every American should feel confident that their deposits will be there, if and when they need them,” Biden said at the White House.
Biden stipulated that “no losses” stemming from the collapse of the Silicon Valley and Signature banks would be borne by taxpayers. He said he would ask Congress and federal regulators to tighten banking rules to make it less likely that a major failure happens again.
–Francesca Chambers
Companies impacted by SVB collapse
In addition to Etsy, online game platform Roblox on Friday said it had about 5% of its $3 billion in cash at Silicon Valley Bank, and said the collapse would have “no impact” on its day-to-day operations. The company did not immediately return a request for comment.
Streaming platform company Roku said in a regulatory filing Friday that it had about a quarter of its $1.9 billion worth of cash and cash equivalents held in Silicon Valley Bank.
Roblox and Roku declined to comment further Monday.
–Bailey Schulz
What does the Silicon Valley Bank failure mean?
Even if you didn’t have money deposited in SVB, the bank’s failure, the first since 2020 and the second largest on record, matters for the entire U.S. banking system.
Before last week, there was little reason to suspect that you couldn’t withdraw as much money from your bank account as you’d like at any given time.
But as panicked customers rushed to SVB branches and crashed the bank’s site once it became apparent that it was in trouble, many began to wonder if their money was safe where it was deposited.
That fear directly flowed to Signature Bank, contributing to its collapse on Sunday.
–Elisabeth Buchwald
Why did Signature Bank fail?
Signature Bank, a New York-based financial institution that became a big lender in the crypto industry, was ordered to close over the weekend. The bank was part of only a handful of financial institutions allowing customers to deposit crypto assets.
That didn’t bode well for the bank when crypto plunged as a result of FTX’s collapse last year.
Signature board member Barney Frank, a former congressman who helped design new financial regulations after the 2008 financial crisis, ultimately blamed SVB for its collapse. “It was an SVB-generated panic,” he told The Wall Street Journal. “We were fine until the last couple of hours on Friday.”
–Elisabeth Buchwald
Bank term funding program (BTFP): What is it?
That’s a facility created by the Federal Reserve that allows banks to offer high quality securities such as Treasuries and mortgage-backed securities as collateral for cash at par value, meaning banks can monetize these securities holdings well above the market value.
A problem for SVB was that when companies began withdrawing large amounts of money to fund their businesses, it had to sell its longer-term Treasuries and securities at a loss to cover the withdrawals. The market value of the securities had dropped sharply amid high inflation and aggressive Fed rate hikes to slow it.
Because SVB had to take such a huge loss on the securities, it no longer had enough assets to cover its deposits.
The BTFP “will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress,” the Fed said.
–Medora Lee
Did Peter Thiel play a part in the collapse of SVB?
Billionaire tech mogul Peter Thiel is seen as having accelerated SVB’s fall after talk circulated Thursday that his Founders Fund venture capital firm asked its companies to move their funds.
VC firms Coatue Management, Union Square Ventures and Founder Collective also reportedly had advised their portfolio companies to pull their money from the bank, while Canaan told its portfolio companies to remove their cash on an as-needed basis, reports said.
This set off panic across Silicon Valley, prompting SVB’s CEO on Thursday to hold a conference call with clients asking them to remain calm.
–Medora Lee
What businesses will be most affected by SVB’s failure?
Tech and crypto businesses.
“The fact that the collapses have principally been in the tech and crypto spaces suggests that these sectors are even more at risk than the economy as a whole” wrote Brad McMillan, chief investment officer at broker-dealer Commonwealth Financial Network. “While other banks will likely move to replace SVB, they will not be as focused or as dedicated to the sector, which will slow things down going forward. One of the primary enablers of the tech boom is now gone.”
–Medora Lee
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