BOOM: Silicon Valley Bank is Shut Down
Posted on 03/10/2023
Financial regulators have closed Silicon Valley Bank and have taken control of the bank’s deposits. This is according to the Federal Deposit Insurance Corporation (FDIC). Silicon Valley Bank, commonly known as SVB, is the largest U.S. bank failure since the 2008 global financial crisis. SVB Financial Group is the parent of SVB. SVB Financial was unable to find a buyer before a bank run caused regulators to shut it down.
The FDIC’s standard insurance covers up to US$ 250,000 per depositor, per bank, for each account ownership category. The F.D.I.C. created a new bank, the National Bank of Santa Clara, to hold the deposits and other assets of the failed one. The clear majority of SVB’s customers were businesses that had more than that on deposit at the bank. As of December 2022, more than 95% of the bank’s deposits were uninsured, according to regulatory filings.
SVB was a major bank for venture-backed companies. SVB didn’t just make loans, they often gave startup founders benefits such as cheap mortgages and liquidity preferences as long as they kept their companies’ deposits at the bank. Several other bank stocks were temporarily halted on March 10, 2023, including First Republic Bank, PacWest Bancorp, and Signature Bank. Silicon Valley Bank has roughly a US$ 73 billion loan book, around 20% of which is venture debt.
Here is a press release from the FDIC on March 10, 2023: “Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.
All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.
Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.
As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.
Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959.
The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition. Loan customers should continue to make their payments as usual.
Silicon Valley Bank is the first FDIC-insured institution to fail this year. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.