Silicon Valley Bank has been closed by regulators, which are now in charge of the bank’s deposits, according to a release sent out by the Federal Deposit Insurance Corporation on Friday.
While banking activities in SVB’s 17 branches are closed today, SVB’s operations will resume on Monday — this time, with the FDIC in charge. Of the many moves that FDIC is making, the top priority appears 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 clear.” Uninsured depositors will get paid an advanced dividend within the next week, the memo says, and future dividends could be made as FDIC sells assets of SVB.
Deposit insurance, per the FDIC's definition, 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 isn’t clear. Per 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 lost $1.8 billion in the sale of U.S. treasuries and mortgage-backed securities that it had invested in, owing to rising interest rates. The bank also said that it was raising more capital and investing into higher-yield products. Panic ensued, leading the share price to tank more than 50% as it encountered a stampede of withdrawals from founders being advised by their VCs to pull money or diversify out of the bank.
SVB CEO Greg Becker said in a call yesterday with venture clients that their assets are safe and that the stock sale was announced as an attempt to increase financial flexibility, strength and profitability at the bank.
Becker said 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.”
In its release today, the FDIC advised that “Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959."