What to Know About Silicon Valley Bank Collapse

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What to Know About Silicon Valley Bank Collapse
On Friday, the federal government took over Silicon Valley Bank and seized management of customers’ deposits in the billions. Axios noted, “FDIC insurance covers up to $250,000 of deposits, all of which will be made available by Monday morning. But most of SVB's customers are companies with much higher balances, and it's not yet clear how much money they'll be able to draw and when.”

The best case scenario: “another financial institution steps up and agrees to buy SVB, thus automatically strengthening its balance sheet”

The worst case scenario: “the market opens Monday and SVB remains a ward of the state, with no white knight on the horizon”

Yesterday Treasury Secretary Janet Yellen said that a bailout by the government was not being considered and that she was working with federal regulators to protect depositors. She told CBS, “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out...and the reforms that have been put in place means we are not going to do that again.” She added, “But we are concerned about depositors and are focused on trying to meet their needs.”

Former Congressional Budget Office Director Doug Holtz-Eakin said on Fox Business, “This looks like a business model failure. The Silicon Valley Bank had poor management of its Tier 1 capital, heavily concentrated in one asset. And it had a very narrow client base. It's all tech companies. It’s literally just Silicon Valley. So, I think of this as a real management failure. I don’t think it’s a financial system failure.”

Fox Business also highlighted commentary from Dennis M. Kelleher, co-founder, president and CEO of Better Markets, that pointed to a larger problem:

"While the immediate financial stability threats will materialize or be addressed, the underlying fundamental problems caused in large part by the Fed will remain and likely get worse.  

"The Fed’s actions to fight increasing inflation will need to be materially adjusted, which it should be anyway because inflation is driven by many factors that are beyond the Fed’s control. Causing financial instability and a recession (of any depth and length) while missing the mark on inflation should cause a fundamental rethinking of the Fed’s powers, authorities and role."

RELATED:

Silicon Valley Bank employees received bonuses hours before government takeover (CNBC)

Here’s how much of your bank deposits are FDIC protected (The Washington Post)

Etsy warns sellers of delay in processing payments due to Silicon Valley Bank collapse (NBC News)

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