On Friday, the Federal Deposit Insurance Corporation (FDIC) shut down Silicon Valley Bank, based in Santa Clara, California. It was the largest failure of a US bank since the 2008 financial crisis, and the second-largest failure in US history.
The bank, which specialized in lending to technology companies, had been struggling with a bank run as depositors rushed to withdraw their money amid concerns about its balance sheet. California regulators closed the bank in order to contain the fallout.
The FDIC, Treasury Department, and the Federal Reserve announced in a joint statement on Sunday that depositors in Silicon Valley Bank would have access to all of their money starting Monday. They also said a special bank assessment would be enacted to offset losses, with all shareholders and bondholders not being protected, and senior management fired. A $25 billion fund has been initiated to protect deposits, though no taxpayer funds are expected to be implicated.
Elon Musk also weighed in on the situation, indicating on Friday that he was “open to the idea” of buying Silicon Valley Bank as he lays the groundwork for Twitter payments.
The FDIC has stepped in to guarantee full access to insured deposits no later than Monday morning and to pay uninsured depositors an “advance dividend within the next week.” President Joe Biden sought to assure Americans that the “banking system is safe” and that their “deposits are safe.”
The bank’s failure was due to a pandemic bull run that inflated the value of tech startups and the funds of investors, resulting in a tripling of deposits at the regional bank. The bank then invested a large share into long-dated Treasury bonds that promised good returns when interest rates were low. However, when interest rates rose, the bank was unable to pay back customers that withdrew their deposits, leading to its collapse.
Several top venture capital firms, spooked by SVB's tenuous outlook, suggested to portfolio companies that they pull money from the bank, which may have contributed to the bank failing. The collapse of the 40-year-old bank marks the largest of a financial institution since the failure of Washington Mutual in 2008.
In remarks on Monday, President Joe Biden made it clear that the public will not have to pay any money in connection with the government's action concerning Silicon Valley Bank. However, Democratic Sen. has expressed skepticism towards this statement.
0. “Silicon Valley Bank: Shares fall as fears persist about failed US bank” BBC, 13 Mar. 2023, https://www.bbc.com/news/business-64941010
1. “How Silicon Valley Bank failed” Axios, 13 Mar. 2023, https://www.axios.com/2023/03/13/silicon-valley-bank-collapse-market
2. “House Republicans meeting Monday evening to plot response to Biden’s handling of SVB collapse” Fox News, 13 Mar. 2023, https://www.foxnews.com/politics/house-republicans-meeting-monday-evening-plot-response-bidens-handling-sbv-collapse
3. “Treasury, regulators unveil bank rescue plan to stem crisis” POLITICO, 13 Mar. 2023, https://www.politico.com/news/2023/03/12/fdic-holds-auction-for-svb-amid-growing-uncertainty-00086696
4. “The Silicon Valley Bank Bailout Didn't Need to Happen” The American Prospect, 13 Mar. 2023, https://prospect.org/economy/2023-03-13-silicon-valley-bank-bailout-deregulation/
5. “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/
6. “PR-16-2023 3/10/2023” FDIC, 12 Mar. 2023, https://www.fdic.gov/news/press-releases/2023/pr23016.html
7. “Silicon Valley Bank collapsed: Here's what Minnesotans need to know” Star Tribune, 13 Mar. 2023, https://www.startribune.com/minnesota-banks-stocks-decline-federal-government-quells-fear-silicon-valley-bank-signature-collapse/600258460/
8. “Silicon Valley Bank's failure, the government's depositor rescue, and venture capitalists' incredible tantrum.” Slate, 13 Mar. 2023, https://slate.com/technology/2023/03/silicon-valley-bank-rescue-venture-capital-calacanis-sacks-ackman-tantrum.html
9. “There’s a deeper story to Silicon Valley Bank’s failure. What can we learn from it?” The Guardian, 13 Mar. 2023, https://www.theguardian.com/commentisfree/2023/mar/13/svb-collapse-2008-financial-crisis
10. “The tech industry avoided an ‘extinction-level event,' but it's not unscathed” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/13/tech/tech-industry-relief-silicon-valley-bank/index.html