Why did FDIC take over Silicon Valley Bank? (2024)

Why did FDIC take over Silicon Valley Bank?

When Silicon Valley Bank failed earlier this month, the Federal Deposit Insurance Corp. stepped in, taking over the bank to protect its depositors.

Why did it collapse? The collapse happened for multiple reasons, including a lack of diversification and a classic bank run, where many customers withdrew their deposits simultaneously due to fears of the bank's solvency. Many of SVB's depositors were startup companies.

Silicon Valley Bank (SVB) was shut down in March 2023 by the California Department of Financial Protection and Innovation. Based in Santa Clara, California, the bank was shut down after its investments greatly decreased in value and its depositors withdrew large amounts of money, among other factors.

SAN FRANCISCO – The California Department of Financial Protection and Innovation (DFPI) announced today that, pursuant to California Financial Code section 592, it has taken possession of Silicon Valley Bank, citing inadequate liquidity and insolvency.

When the FDIC takes over operations, it restores account access by setting up a "bridge bank." A bridge bank, which operates under an FDIC-appointed board, is intended to "bridge" the time between a bank failure and when the FDIC can find a more stable resolution.

D., examines the chaotic Silicon Valley Bank (SVB) collapse on March 10, he sees a number of issues: inadequate risk management at SVB, poor regulatory oversight at state and federal level, an inordinate amount of uninsured deposits, and regulatory rollbacks on banks greater than $50 billion — all of which resulted in ...

Some believe that SVB couldn't borrow sufficient cash from the Fed to stem the run because it lacked collateral. But the fair-market value of its entire portfolio of government-backed securities was $102.2 billion as of Dec. 31.

The staggering withdrawals unfolded at a speed enabled by digital banking and were likely fueled in part by viral panic spreading on social media platforms and, reportedly, in private chat groups. The Silicon Valley Bank branch office in downtown San Francisco, California, U.S., March 13, 2023.

Is Silicon Valley Bank insured? While Silicon Valley Bank is FDIC-insured, one of the unique aspects of the institution is the number of depositors whose accounts were over the FDIC limit: More than 93% of the domestic deposits at SVB were above $250,000.

And the culprit in this case was the very institution whose mission is to prevent bank runs and systemic collapse: the Federal Reserve.

Who bailed out the Silicon Valley Bank?

The US government has aided banks in a handful of ways, some more direct than others: The Federal Deposit Insurance Corp., an independent agency created by Congress, guaranteed all deposits at Silicon Valley Bank and Signature Bank; the Federal Reserve opened a broader emergency lending program to prevent runs on ...

FDIC insurance means that any money you have in an SVB bank account up to $250,000 will be fully covered. You will get all that money back. For anything over $250,000 in your SVB bank account, Moody's estimates you will get 80 cents to 90 cents for each dollar deposited.

Still, the FDIC itself doesn't have unlimited money. If enough banks flounder at once, it could deplete the fund that backstops deposits. However, experts say even in that event, bank patrons shouldn't worry about losing their FDIC-insured money.

Generally, money kept in a bank account is safe—even during a recession. However, depending on factors such as your balance amount and the type of account, your money might not be completely protected. For instance, Silicon Valley Bank likely had billions of dollars in uninsured deposits at the time of its collapse.

Some banking experts believe that had there been better oversight of SVB's management of their investment portfolio, including regular analysis of their interest rate risks, this would not have happened. 2) Liquidity and Cash Management Planning. Timing was a big issue at play for SVB.

The FDIC created Silicon Valley Bridge Bank, N.A., following the closure of Silicon Valley Bank by the California Department of Financial Protection and Innovation. All of the deposits and substantially all assets of Silicon Valley Bank were transferred to the bridge bank.

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.

Largest shareholders include Norges Bank, Kingswood Wealth Advisors, Llc, Aegon Asset Management Uk Plc, Boston Private Wealth Llc, Gifford Fong Associates, BIBL - Inspire 100 ETF, Pathstone Family Office, Llc, FDFF - Fidelity Disruptive Finance ETF, Jefferies Financial Group Inc., and Hanco*ck Whitney Corp .

March 20 (Reuters) - The Federal Deposit Insurance Corporation on Monday decided to break up Silicon Valley Bank (SVB) and hold two separate auctions for its traditional deposits unit and its private bank after failing to find a buyer for the failed lender last week.

On Friday, March 10, 2023, Silicon Valley Bank, Santa Clara, CA was closed by the California Department of Financial Protection & Innovation and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.

Who withdrew money from SVB before collapse?

Investors at several venture capital firms, including executives at Peter Thiel's Founders Fund, Union Square Ventures and Coatue Management urged their portfolio companies to withdraw their deposits from the bank, with Founders Fund withdrawing all of its funds from the bank by the morning of March 9.

SVB and Signature aren't going to be revived, and their lenders and shareholders aren't getting any government money. The money for depositors will come from a fund that banks pay into, the Deposit Insurance Fund, and not from taxpayers.

Uninsured depositors will also get a receivership certificate for the remaining amount of their uninsured funds. The FDIC said that as it sells off SVB's assets, future payments may be made to uninsured depositors. As is typical for bank failures, the FDIC will now look for a buyer to take over SVB.

“For the two banks that were put into receivership, the FDIC will use funds from the deposit insurance fund to ensure that all of its depositors are made whole,” a Treasury official told reporters on Sunday night. “In that case the deposit insurance funded is bearing the risk.

Customers of Silicon Valley Bank aren't going to lose any of their deposits. Neither will the businesses or individuals who have money at Signature Bank.