FDIC Closes Silicon Valley Bank: Biden Administration Reassures Americans of Banking System Safety
On Friday March 12th, the Federal Deposit Insurance Corporation (FDIC) shut down the Silicon Valley Bank (SVB), marking the largest bank failure in the US since the 2008 financial crisis. This was followed by the closure of Signature Bank in New York, the third-largest bank failure in US history.
SVB was founded in 1983 in Santa Clara, California and quickly became the bank for the burgeoning tech sector. It claimed to bank for nearly half of all venture-backed startups in 2021 and had around $209 billion in total assets. Over 90% of deposits exceeded the $250,000 limit for federal insurance on bank accounts, leaving many companies facing a loss of large amounts of cash.
In response, the Biden administration approved an intervention to assure all depositors at the failed Silicon Valley Bank would have access to their money. The FDIC will insure all deposits, even those above the normal $250,000 limit, and a special bank assessment has been initiated to protect deposits. A $25 billion fund has been established to protect deposits, though no taxpayer funds are expected to be involved.
The collapse of Silicon Valley Bank was largely caused by a bank run resulting from a bad bet on interest rates and a lack of diversification of its business. SVB was primarily focused on venture capital and private equity, and when things got bad for its non-diversified group of clients, it quickly got bad for the bank.
Furthermore, SVB was known for being particularly flexible about lending tech startups money, even though they didn’t have free cash flow or much in the way of assets. This flexibility and its concentration in the tech industry made it vulnerable to risk.
The Biden administration has sought to assure the public the situation is contained, saying “Americans can have confidence that the banking system is safe. Your deposits are safe.” The FDIC has taken control of SVB and customers will have access to their insured deposits. A $25 billion fund has been created to protect uninsured deposits, though no taxpayer funds are expected to be involved.
The collapse of Silicon Valley Bank has caused many to question the safety of the banking system and the risks associated with tech startups, but the Biden administration has sought to assure the public that the banking system is safe.
0. “Bernie Sanders blames Trump-era policy for Silicon Valley Bank run” Business Insider, 13 Mar. 2023, https://www.businessinsider.com/silicon-valley-bank-bernie-sanders-donald-trump-blame-2023-3
1. “Five things to know about Signature Bank” The Hill, 13 Mar. 2023, https://thehill.com/policy/technology/3898329-five-things-to-know-about-signature-bank/
2. “What is Silicon Valley Bank? The bank’s collapse, explained.” Vox.com, 12 Mar. 2023, https://www.vox.com/technology/23634433/silicon-valley-bank-collapse-silvergate-first-republic-fdic
3. “Signature Bank's collapse could deal a blow to cryptocurrency industry” The Washington Post, 13 Mar. 2023, https://www.washingtonpost.com/technology/2023/03/13/signature-bank-collapse-crypto/
4. “Despite rescue, Seattle startups and banks face SVB blowback” The Seattle Times, 14 Mar. 2023, https://www.seattletimes.com/business/despite-rescue-seattle-startups-and-banks-face-svb-blowback/
5. “Why did Silicon Valley Bank fail and is a financial crisis next?” Al Jazeera English, 14 Mar. 2023, https://www.aljazeera.com/economy/2023/3/14/why-did-silicon-valley-bank-fail-and-is-a-financial-crisis-next
6. “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/
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