U.S. commercial bank Silicon Valley Bank (SVB) collapsed on March 10, 2023, resulting in the second largest bank failure in national history and the largest since the 2008 financial crisis. California banking regulators took control of SVB and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. The FDIC took swift action, establishing the Deposit Insurance National Bank of Santa Clara (DINB) and transferring all insured SVB deposits to DINB. This article provides more information on SVB’s collapse, explains regulators’ responses to the incident and outlines next steps.
SVB was a U.S. commercial bank that specialized in technology startup banking. It provided financing for almost half of the U.S. venture-backed technology and health care companies. According to the FDIC, SVB had $209 billion in total assets as of the end of 2022 and was among the top 20 U.S. commercial banks. On March 8, 2023, SVB announced that it was trying to raise $2.25 billion in capital to meet its obligations. The next day, depositors, fearing the bank was on the brink of financial insolvency, tried to withdraw approximately $42 billion in funds. This led to a run on the bank.
Experts believe that SVB’s financial issues were, in part, the result of rising interest rates, as the bank had heavily invested in U.S. treasury bonds and other debt-backed securities in 2021, which have since dropped in value as the Federal Reserve (the Fed) has raised interest rates in response to inflation. Additionally, due to the recent lack of venture capital funds, many technology startups were forced to withdraw funds held by SVB, placing additional stress on the bank.
On March 12, 2023, federal regulators announced plans to ensure SVB depositors would have full access to all their funds—not just their insured funds—by the following day. In a move to assure the public and avert a systematic banking panic, regulators approved plans to backstop depositors and financial institutions associated with SVB; however, taxpayers will not have to shoulder the losses associated with SVB’s collapse and there will be no government bailout, according to the White House. Additionally, the U.S. Treasury Department designated SVB as a systemic risk, giving it authority to unwind the institution in a way that protects all depositors.
The Fed also announced the creation of a new Bank Term Funding Program (BTFP) to safeguard institutions affected by SVB’s collapse and resulting market instability. The BTFP will provide affected institutions—including banks, saving associations and credit unions—with loans of up to one year to help ensure they can meet their depositors’ needs.
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