Here’s what could happen next for Silicon Valley Bank customers
A customer stands outside the closed headquarters of Silicon Valley Bank (SVB) on March 10, 2023 in Santa Clara, California.
Justin Sullivan | Getty Images
Silicon Valley Bank customers, along with investors and bankers around the world, are awaiting word from US regulators on what’s next after the biggest bank failure since 2008.
The Federal Deposit Insurance Corporation (FDIC) said Friday that SVB will open Monday morning, under the control of the newly formed National Deposit Insurance Bank of Santa Clara. Once that happens, insured depositors with up to $250,000 in their accounts will be able to access their money.
But most of SVB’s deposits were not insured, and it is unclear when those customers will get access to their money – or if they will get it all back. SVB’s role as the main bank for start-ups and other venture-backed companies means that many companies may struggle to meet payment and other obligations if their money is not repaid quickly.
Many investors on Wall Street and in Silicon Valley expect additional information to be announced at some point on Sunday. Here’s a look at some of the ways forward from here.
The Treasury Secretary, Janet Yellen, said on Sunday that financial support from SVB is not on the table but that regulators are exploring other options.
“We care about investors and we’re focused on trying to meet their needs,” Yellen said on CBS’ “Face the Nation.”
“This is really a decision for the FDIC, as they decide how best to resolve this company,” she said.
U.S. Treasury Secretary Janet Yellen attends a U.S. House Ways and Means Committee hearing on President Joe Biden’s fiscal year 2024 Budget Request on Capitol Hill in Washington, U.S., March 10, 2023.
Evelyn Hockstein Reuters
One possible option is to use the FDIC’s systemic risk exception tool to freeze uninsured deposits at SVB. Under the Dodd-Frank Act, that move would have to be made in conjunction with the Treasury Secretary and the Federal Reserve.
In addition, Bloomberg News reported on Saturday that regulators were weighing creating a special investment vehicle that would stop uninsured deposits at other banks, which could keep the bank from disintegrating in the -next week.
Another possibility is if another bank stepped up to buy part or all of SVB. This happened during the financial crisis, including when JPMorgan Chase including Washington Mutual in 2008. Bloomberg News reported Sunday that the FDIC is running an auction process for SVB.
Sen. Mark Warner (D-Va.), a member of the Senate Banking, Housing and Human Affairs Committee, said on ABC’s “This Week” that “the best outcome is to get SVB.”
Historically, such purchases have often occurred over weekends. As soon as the bank opens on Monday, more investors could withdraw their money, making sales more difficult.
Sell FDIC assets
If there is no buyer for SVB or a new reserve created by regulators, the FDIC sells SVB assets to raise funds that would be used to repay uninsured investors .
SVB had tens of billions of dollars in group mortgage-backed securities. These assets are very liquid, and theoretically could be sold quickly without much loss. Regulatory reforms since the 2008 financial crisis have also made mortgage-backed securities much safer than those that contributed to financial stability issues at the time.
The FDIC said Friday that uninsured depositors would receive a receipt and receive a payday advance within a week.
Bloomberg News reported on Saturday night that between 30% and 50% of the uninsured deposits could be returned as soon as Monday.
Other assets held by SVB include loans that are less liquid and may be more difficult to sell. That process could take several weeks or more and end with uninsured deposits being returned at less than 100%.
Some SVB customers, such as businesses, may be able to sell their investment applications to other financial companies at a discount to raise funds faster than the FDIC process.
Impact on markets, other banks
Investors have warned that the failure of government regulators to announce a new plan for the restoration of SVB investments could spread issues in other small and medium-sized banks as well as financial markets.
One worrisome consequence is that customers would withdraw large amounts of money from other banks and move them to the largest US banks that the government has defined as systemically important. Customers withdrew more than $42 billion from SVB on Thursday, and similar moves at other banks could weigh on those companies even if they had stronger balance sheets.
That fear could first appear in the financial markets. The US futures market opens at 6pm ET, and many Asian markets open around that time.
SVB’s failure has already had an impact on wider markets. The S&P 500 lost 4.55% last week, while regional bank stocks fell 16% for their worst week since March 2020.