Protect Your Deposits: What the Silicon Valley Bank Disaster Can Teach Us
Silicon Valley Bank had a multitude of deposits from one specific industry, numerous large depositors that were not FDIC insured and a high ratio of securities with unrealized losses in comparison to their total capital. This made them incredibly vulnerable to the digital depositor “rug-pull” that caused them to sell their securities at a major loss.[0] A number of other banks, particularly ones that focused on serving large depositors above the FDIC limit and thus exposed to a bank run, were also put in a similar position; this has caused a localized contagion amongst banks with similar asset and deposit profiles to Silicon Valley Bank.[0]
In the larger context, Silicon Valley Bank had many large and uninsured depositors, clients with accounts above the $250,000 FDIC limit. Ten years ago, the bank would have been subject to a Federal Reserve stress test that would have forced them to diversify their investments.[1] SVB specialized in lending to tech startups and venture capital firms, and had $209 billion in assets as of December 31, 2022.[2] It was also pioneering in the use of venture debt, or loans to investor-backed startups.[3]
In March of 2023, SVB Financial Group announced they had sold $21 billion of assets at a $1.8 billion loss, and that they would be selling $2.25 billion worth of shares to cover the losses.[4] This spooked their customers, and the following night, depositors tried to withdraw $42 billion, making the financial institution insolvent.[5] The FDIC then took control of SVB.[5]
It is believed that the regulators may not have paid close enough attention to the unrealized losses on SVB’s balance sheet.[6] Furthermore, in 2018, the Trump administration had signed a bipartisan bill that reduced the scrutiny over regional banks like SVB and removed the requirement of stress tests and high capital requirements for those banks with assets under $250 billion.[7]
In order to protect your own deposits, it’s important to know that the FDIC provides insurance up to $250,000 per depositor, per bank, for every account ownership category.[8] Additionally, it is recommended that you stay informed about any news related to the banks you have deposits with, and if there is any indication of trouble, move your money to an FDIC insured bank.
0. “March 2023 Newsletter: A Look at Bank Solvency” Lyn Alden, 13 Mar. 2023, https://www.lynalden.com/march-2023-newsletter/
1. “Opinion | The Boys Who Cried ‘Woke!’” The New York Times, 14 Mar. 2023, https://www.nytimes.com/2023/03/14/opinion/silicon-valley-bank-republicans-woke.html
2. “How does a bank collapse in 48 hours? A timeline of the SVB fall” CNN, 13 Mar. 2023, https://www.cnn.com/2023/03/11/business/svb-bank-collapse-explainer-timeline/index.html
3. “If the Feds fail to find big banks to buy SVB and Signature, the likeliest buyers are the one group they don’t want to sell to” Yahoo Life, 17 Mar. 2023, https://www.yahoo.com/lifestyle/feds-fail-big-banks-buy-222917693.html
4. “Silicon Valley Bank collapse and other key moments in the week that rocked banks” NPR, 17 Mar. 2023, https://www.npr.org/2023/03/17/1163911866/5-big-moments-from-the-week-that-rocked-the-banking-system
5. “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
6. “What to Know About Trump-Era Bank Deregulation and Bank Failures” FactCheck.org, 16 Mar. 2023, https://www.factcheck.org/2023/03/what-to-know-about-trump-era-bank-deregulation-and-bank-failures/
7. “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
8. “Is my money safe in the bank right now? More depositors are wondering after SVB's collapse” USA TODAY, 15 Mar. 2023, https://www.usatoday.com/story/money/2023/03/15/bank-safe-collapse-protect-money-svb/11474023002
