Silicon Valley Bank is being shut down – According to a release sent out by the Federal Deposit Insurance Corporation on Friday, Silicon Valley Bank has been closed by regulators, who are now in charge of the bank’s deposit.
Although Silicon Valley Bank is being shut down, SVB will resume operations on Monday, but currently banking activities in all of SVB’s 17 branches are closed today, when activities resume on Monday, they will be under the authority of FDIC. The FDIC’s top priority appears to be giving customers access to their deposits, among other things.
According to the same memo, all insured depositors will have “full access” to “insured” deposits by Monday morning, March 13, 2023, and official checks will “continue to clear.” Uninsured depositors will receive an advance dividend within the next week, according to the memo, and future dividends may be paid as the FDIC sells SVB assets.
Deposit insurance, as defined by the FDIC, means that deposits are insured up to a maximum of $250,000 per depositor, per FDIC-insured bank, and per ownership category. Could depositors be eligible for more than this? It’s not clear. According to the FDIC’s website, when a bank fails:
First, as the insurer of the bank’s deposits, the FDIC pays insurance to depositors up to the insurance limit. Historically, the FDIC pays insurance within a few days after a bank closing, usually the next business day, by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the failed bank, or 2) issuing a check to each depositor for the insured balance of their account at the failed bank.
In some cases—for example, deposits that exceed $250,000 and are linked to trust documents or deposits established by a third-party broker—the FDIC may need additional time to determine the amount of deposit insurance coverage and may request supplemental information from the depositor in order to complete the insurance determination.
The move comes after SVB announced on Wednesday that it had lost $1.8 billion in the sale of US treasuries and mortgage-backed securities that it had invested in due to rising interest rates. The bank also stated that it was raising more capital and investing in higher-yielding products. Panic ensued, causing the share price to plummet more than 50% as a stampede of withdrawals from founders advised by their VCs to withdraw money or diversify out of the bank occurred.
In a call with venture clients yesterday, SVB CEO Greg Becker stated that their assets are safe and that the stock sale was announced in an effort to increase financial flexibility, strength, and profitability at the bank.
Becker stated that the bank has “ample liquidity” to support its clients, “with one exception: If everybody is telling each other that SVB is in trouble, that will be a challenge.” The executive asked VC clients to “stay calm. That’s my ask. We’ve been there for 40 years, supporting you, supporting the portfolio companies, supporting venture capitalists.”
According to the FDIC’s press release today, “customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959.”
Although Silicon Valley Bank is being shut down, it is quite obvious that depositors really don’t have much to worry about because the FDIC has assured them of access to their deposit. This definitely means that Silicon Valley Bank is being shut down does not affect their money indefinitely.