America’s 16th largest bank fails after depositors’ panic, FDIC takes over

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.

The federal agency rushed to seize the assets of Silicon Valley after a run on the bank, the largest failure of a financial institution since Washington Mutual collapsed during the height of the financial crisis more than a decade ago.

Silicon Valley, the nation’s 16th largest, failed after depositors — mostly technology workers and venture capital-backed companies — began withdrawing their money as anxiety about the bank’s situation spread this week.

All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023, and the FDIC will pay uninsured depositors an advance dividend within the next week, but the situation is drawing criticism from observers.

“The biggest American banks are now bigger than they were when most of us first heard the term ‘too big to fail’,” said Lisa McCormick, a consumer advocate in New Jersey. “Silicon Valley Bank went from $211 billion in assets to FDIC receivership, showing that Congress has failed to stem the risk of another global economic meltdown!”

Moody’s chief economist Mark Zandi said Silicon Valley Bank’s decline stems partly from the Federal Reserve’s aggressive interest rate hikes over the past year.

“Higher rates have also lowered the value of their treasury and other securities which SVB needed to pay depositors. All of this set off the run on their deposits that forced the FDIC to takeover SVB,” said Zandi, who expressed doubt that the bank’s collapse would set off the kind of domino effect that sparked the 2008 financial crisis.

“The system is as well-capitalized and liquid as it has ever been,” Zandi said. “The banks that are now in trouble are much too small to be a meaningful threat to the broader system.”

“This is night and day versus the global financial crisis from 15 years ago,” said Mike Mayo, Wells Fargo senior bank analyst, who explained that in 2008, “banks were taking excessive risks, and people thought everything was fine. Now everyone’s concerned, but underneath the surface the banks are more resilient than they’ve been in a generation.”

The Silicon Valley Bank meltdown may incite the Federal Reserve to cut rates by 100 basis points by December to prevent contagion in the financial system, said Larry McDonald, founder of The Bear Traps Report.

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.

Shortly before noon eastern time, the FDIC announced it was shuttering the bank.

Notably, the agency did not wait until the close of business to seize the bank, as is typical in an orderly wind down of a financial institution.

The FDIC could not immediately find a buyer for the bank’s assets, signaling how fast depositors had cashed out. The bank’s deposits will now be locked up in receivership.

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.