FDIC Takes Over Silicon Valley Bank Following Bank Run

On Friday, March 12th, the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank (SVB) following a massive bank run that left the bank insolvent.^[0] SVB was the 16th largest bank in the US, and provided financing for almost half of US venture-backed technology and health care companies.^[1] It was the largest bank failure in the US since Washington Mutual in 2008, during the Great Recession.^[2]

The bank’s collapse was largely due to the Fed’s aggressive interest rate hikes a year ago, which tanked the value of SVB’s bond portfolio.^[3] As the Fed tightened monetary policy, bond yields soared, pushing bond values down.^[4] At the same time, venture capitalists reportedly advised companies to withdraw their money from the bank, triggering a bank run.^[5]

This posed a major problem for SVB’s customers, as federal insurance only covers deposits up to $250,000.^[6] The Economist reported that nearly 93 percent of SVB's deposits were not covered by insurance.^[7] To protect its depositors, the government announced that the FDIC would retroactively protect all depositors at the two failed banks, not just smaller, insured, depositors. The Federal Reserve and the Treasury Department also said that banks facing similar situations—having to sell Treasury securities to meet deposits—could instead borrow from the Fed.^[8]

On Sunday evening, the FDIC declared that all depositors at the two failed banks would be retroactively covered by protection, not just the smaller, insured depositors, in an attempt to avert runs on other mid-size banks. The Federal Reserve and the Treasury Department also said that banks facing similar situations—having to sell Treasury securities to meet deposits—could instead borrow from the Fed.^[8]

On Monday, President Joe Biden sought to reassure Americans that the banking system was sound. “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” he said in a televised speech.

The FDIC, Treasury Department and the Fed’s intervention not only protected the American economy, but also had “profoundly positive impacts on California,” according to California Gov. Gavin Newsom. What Gov. Newsom failed to mention is that the measure safeguarded his own businesses should they have more than $250,000 in deposits.^[9]

0. “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

1. “What's a bank run? The 10 moves that led to SVB's demise” CNN, 14 Mar. 2023, https://www.cnn.com/2023/03/14/business/bank-run-explained-svp-dg/index.html

2. “Gavin Newsom hides ties to failed Silicon Valley Bank in statement praising Biden's bailout” Fox News, 15 Mar. 2023, https://www.foxnews.com/politics/gavin-newsom-hides-client-failed-silicon-valley-bank-statement-praising-bailout

3. “Why Investors Should Care About the Banking Scare” Morningstar, 14 Mar. 2023, https://www.morningstar.com/articles/1144082/why-investors-should-care-about-the-banking-scare

4. “Don't Panic: The “Too Big to Fail” Banks Have Ample Liquidity” The Motley Fool, 13 Mar. 2023, https://www.fool.com/investing/2023/03/13/dont-panic-too-big-to-fail-banks-ample-liquidity

5. “Silicon Valley's Titans Are Realizing a Lot of People Really Don't Like Them” The New Republic, 14 Mar. 2023, https://newrepublic.com/article/171125/silicon-valley-bank-bailout-criticism

6. “Opinion | How Bad Was the Silicon Valley Bank Bailout?” The New York Times, 14 Mar. 2023, https://www.nytimes.com/2023/03/14/opinion/silicon-valley-bank-bailout.html

7. “Silicon Valley Bank Bailout is Socialism for the Rich” Washington Free Beacon, 13 Mar. 2023, https://freebeacon.com/columns/silicon-valley-bank-bailout-is-socialism-for-the-rich

8. “Silicon Valley Bank: Who's to Blame?” City Journal, 13 Mar. 2023, https://www.city-journal.org/silicon-valley-bank-who-is-to-blame

9. “Cheering Silicon Valley Bank Bailout, Gavin Newsom Doesn't Mention He's a Client” The Intercept, 14 Mar. 2023, https://theintercept.com/2023/03/14/cheering-silicon-valley-bank-bailout-gavin-newsom-doesnt-mention-hes-a-client/