Even as insolvency loomed, SVB still pledged “at least $5 billion in loans, investments, and other financing to support sustainability efforts.”
After months of questionable Biden administration assurances that the U.S. economy is robust, the financial world was stunned to learn last week that Silicon Valley Bank (SVB), the nation’s 16th largest, sustained $1.8 billion in losses. This prompted a run on deposits that wiped out SVB’s assets within 48 hours. Experts have reckoned the bank’s failure to be the second largest in U.S. history, unmatched since the 2008 financial crisis.
According to reports, imprudent investments, heavy lending to risky startups, high Biden-era interest rates, and general mismanagement undermined SVB amid the tech sector’s downturn over the past year. The bank’s U.S. division employed no chief risk officer from April 2022 to January 2023. Worse, an astonishing 89% of SVB’s capital holdings are in accounts exceeding the federally insured deposit limit of $250,000, with some running into tens or hundreds of millions of dollars.
Over the weekend, the federal regulatory process snapped into action. Despite protests from prominent business figures, Treasury Secretary Janet Yellen initially announced that SVB would receive no federal bailout. The Federal Deposit Insurance Corporation (FDIC) moved with lightning speed to organize an auction to unload the bank, which it reportedly hoped to settle by late Sunday so that the markets would open this week with minimal disruption.
By Sunday evening, however, the entire federal banking apparatus had abruptly reversed course. A joint statement issued by Treasury, the FDIC, and the Federal Reserve announced that all SVB depositors would be fully covered as of Monday morning, in what they described as a “systemic risk exception.” This euphemistic “resolution” was also extended to New York’s troubled Signature Bank, which regulators closed earlier on Sunday after it had lost big by financing both crypto and New York City’s floundering commercial real estate sector. The institutions’ joint statement further announced that further emergency funds would be made available to any other bank currently facing insolvency.
