US government says Silicon Valley Bank depositors can get their cash on Monday

Feds say this won’t cost taxpayers a dime

Customers of collapsed startup-centric Silicon Valley Bank will be able to access their deposits on Monday, US authorities announced on Sunday.

“After receiving a recommendation from the boards of the FDIC [Federal Deposit Insurance Corporation] and the Federal Reserve, and consulting with the President, Secretary [of Treasury] Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors,” reads a statement issued jointly by the FDIC, Department of Treasury, and Federal Reserve.

“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

Silicon Valley Bank collapsed last week and was taken over by the FDIC after it revealed it had sold off $21 billion in assets – and copped a $1.8 billion loss – to ensure liquidity. The Bank tried to cover that loss by raising additional funds.

That news spooked customers and investors alike. Customers tried to withdraw their money, but SVB systems either went down or were shut down. Investors dumped SVB shares, which lost 60 percent of their value in a day.

The FDIC insures deposits to a value of $250,000 and created a new bank to ensure depositors covered by insurance could access funds deposited with SVB.

But many SVB customers had deposited more than $250,000 and therefore faced the prospect of losing their money.

Over the weekend those customers started to wonder how they would make payroll or fund ongoing operations, leading to fears that many SVB depositors might struggle to continue operations.

Tweets like the below are typical of the reaction as SVB customers tried to get their money out, ASAP, only for wire transfers to fail.

Silicon Valley Bank was the main bank for two of our companies, my personal savings, and my mortgage. This is how things unfolded for us:

Between 2013 and 2023, all good.

Thursday, 9 AM: in one chat with 200+ tech founders (most in the Bay Area), questions about SVB start to… https://t.co/RAB1XvslPE

— Alexander Torrenegra (@torrenegra) March 11, 2023

This LinkedIn post by Snehal AntaniSnehal, CEO of infosec startup Horizon3.ai, offers more detail about how startup operators and venture capitalists scrambled to ensure SVB didn’t drag them down with it.

The joint announcement by US financial authorities doesn’t explain how they’ve made it possible for SVB customers to access their deposits, other than noting “the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.”

“Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law,” the statement reads.

Making that funding available is very much the job of a central bank, as such institutions hold a portion of financial institutions’ deposits to ensure they can meet demand for withdrawals.

But the future of SVB remains unclear. It seems likely that many of its customers will all-but-quit the bank once they get their cash on Monday. SVB will then likely be sold, with rival banks the most likely buyers in what will almost certainly be a fire sale.

Whether any financial institution will step in to SVB’s role as a VC-and-startup-friendly institution willing to take on the substantial risks posed by early-stage companies that burn cash at a furious rate as they try to commercialize new technologies remains to be seen. The needs of the sector were not the main reason SVB crashed - poor investment choices are at the heart of the matter - but the bank said the current economic climate and the high interest rates that are a nasty feature of it is not easy for its clients, and therefore also hard for a business of its sort to navigate.

US president Joe Biden weighed in to the matter as follows.

I'm firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again. I'll have more to say on this tomorrow morning.

— President Biden (@POTUS) March 13, 2023

Biden's intervention begins to address the deeper concern of whether SVB’s woes are symptomatic of widespread problems across the US banking sector, because the US government’s joint announcement also revealed that it’s provided similar support to New York based Signature Bank, which was closed by New York State authorities last week.

The joint statement is peppered with assurances “no losses will be borne by the taxpayer.” That’s in stark contrast to 2008, when the US government poured billions into failed banks as the finance sector endured a widespread crisis. The strong signal that public funds aren’t needed to handle the mess at SVB and Signature Bank has been taken as a sign that the problems are isolated. But then again, SVB claimed to be in rude health just last week.

One more thing to consider: a regulatory filing [PDF] reveals SVB CEO Daniel Beck sold 2,000 shares on February 27th, at $287.59 apiece. SVB shares are now selling for around $100. What did he know two weeks ago? ®