Silicon Valley Bank is being shut down today by regulators

Silicon Valley Bank has been shut down by regulators, who are now in charge of the bank’s deposits, according to a statement sent Friday by the Federal Deposit Insurance Corporation.

While banking at SVB’s 17 branches is closed today, SVB’s operations will resume on Monday, this time with the FDIC in charge. Of the many moves the FDIC is making, the top priority seems to be giving customers access to their deposits. The same memo says that all insured depositors will have “full access” to “insured” deposits no later than Monday morning, March 13, 2023, and that official checks will “continue to collect.” Uninsured depositors will be paid an anticipated dividend within the next week, the memo says, and future dividends could be generated as the FDIC sells off SVB’s assets.

Deposit insurance, as defined by the FDIC, means that deposits are insured up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category. Could depositors receive more than this? It is not clear. According to the FDIC 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 out the insurance within a few days after the bank closes, generally 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. bank, or 2) issue 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 to complete the insurance determination.

The move comes after SVB announced on Wednesday that it lost $1.8 billion on the sale of US Treasury bonds and mortgage-backed securities it had invested in, due to rising interest rates. The bank also said it was raising more capital and investing in higher-performing products. Panic ensued, sending the stock price tumbling more than 50% as it was met with a stampede of withdrawals from founders who were advised by their venture capitalists to cash out or diversify out of the bank .

SVB Chief Executive Greg Becker said yesterday in a call with risky clients that their assets are safe and the sale of shares was announced as an attempt to increase the bank’s financial flexibility, strength and profitability.

Becker said the bank has “ample liquidity” to support its clients “with one exception: if everyone tells each other that SVB is in trouble, it will be a challenge.” The executive asked VC clients to “remain calm. That is my question. We’ve been there for 40 years, supporting them, supporting portfolio companies, supporting venture capitalists.”

In its statement today, the FDIC advised that “customers with accounts exceeding $250,000 should contact the FDIC toll free at 1-866-799-0959.”

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James D. Brown
James D. Brown
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