In the part 1 of this article, we gave a little introduction, background and what went wrong and leading to the gollapse of Silicon Valley Bank (SVB).
In this part 2, we shall be looking at the timeline and other interesting facts about SVB. Let’s jump right in.
A Timeline of What Happened
From the outside, the fall of Silicon Valley Bank seemed to happen quickly over just a few days. Here’s how things went down:
- Silicon Valley Bank said on March 8 that its bond portfolio had lost $1.8 billion and that it planned to sell both common and preferred shares to raise $2.25 billion. After this news came out, Moody’s downgraded the long-term local currency bank deposit and issuer grades for Silicon Valley Bank.
- On March 9, the stock of SVB Financial Group, which owns Silicon Valley Bank, crashed when the market opened. The stock prices of other big banks also went down. Also, more SVB users started taking their money out, and $42 billion worth of withdrawals were tried.
- The trading of SVB Financial Group stock was stopped on March 10. Federal officials said they would take over the bank before it could open for the day. After regulators were unable to find a buyer for the bank, deposits were moved to a bridge bank run by the FDIC, with the promise that insured deposits would be ready by Monday, March 13.
- In reaction to the failure of Silicon Valley Bank on March 12, federal regulators announce emergency measures that let customers get back all of their money, even if it wasn’t insured.
- The main company of Silicon Valley Bank, SVB Financial Group, filed for bankruptcy on March 17.
- On March 26, First Citizens Bank bought all of Silicon Valley Bridge Bank, except for $90 billion in shares and other assets that were still in FDIC receivership.
IMPORTANT
HSBC Holdings Plc said on March 13 that it would buy Silicon Valley Bank UK Limited for 1 pound. This is the part of the company that works in the United Kingdom.
Effects on Depositors and Investors
The FDIC protects bank deposits of up to $250,000 per depositor per bank and per account type.
In other words, if you had $250,000 in a bank account at Silicon Valley Bank, you would get all of it back.
Most of the Silicon Valley Bank accounts had more than $250,000 in them, which meant that most of the money wasn’t protected.
Most of the time, this would mean that account users would lose any money over that amount.
On March 12, the Federal Reserve said that it would use a systemic risk exception to help. This meant that all depositors would get their money back, even if their money wasn’t protected.
But investors won’t have the same chance. The FDIC can protect depositors from losing their money, but it can’t do the same for owners or people with unsecured debt.
In other words, people and organizations that owned SVB Financial Group stock might not get their money back.
Why The Government Assured SVB Depositors on Getting Their Money Back
Federal regulators chose to fully insure and protect all of Silicon Valley Bank’s depositors and their balances because they were afraid of contagion, which is what would happen to the economy as a whole if the bank failed.
During the fall of banks, the stock price of more than just Silicon Valley Bank fell. The stock prices of other banks also went down.
A high-profile bank mistake like this could make people less likely to trust banks. This lack of trust could lead to more of what caused Silicon Valley Bank to fail: account users rushing to take their money out of a bank that doesn’t have enough money to cover them.
In the end, this risk of spreading could hurt not just banks but also the whole economy.
Who Paid to save SVB?
When word got out that officials were going to give all depositors back what they had lost, many people wondered what that would mean for taxpayers.
When the Federal Reserve made its announcement, it was clear that taxpayers would not have to pay for any of the losses.
Instead, the FDIC, which is in charge of protecting bank savings, will give the money. The FDIC pays for these losses with fees that all insured banks pay to the agency every three months.
On March 26, 2023, the FDIC said that if SVB failed, it would cost its Deposit Insurance Fund about $20 billion.
But it would be too simple to say that taxpayers won’t have to pay for any of the costs.
Even though you might not have to pay for the losses directly with your tax dollars, some of the costs could end up coming to you in the end.
For example, if your bank has to pay more for deposit security, it might charge you a higher interest rate on a loan or give you less interest on your savings account.
Note
As a way to fight global inflation, the Federal Reserve and other central banks had been raising interest rates before the Silicon Valley Bank failed. But after SVB, Signature Bank, and Silvergate Capital failed, the Fed raised rates less than was expected before the banks went under.
What is the ‘Term Funding Program’ for Banks?
As a result of the failure of Silicon Valley Bank, the government revealed the Bank Term Funding Program (BTFP).
This is a Federal Reserve-approved program that gives loans to banks, credit unions, and other institutions that hold deposits.
These loans can last for up to a year and help banks meet the needs of their customers.
The scheme also makes sure that banks won’t have to sell high-quality securities quickly to get cash when they need it.
The program started on March 12, 2023, and it will last at least until March 11, 2024.
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What Hapoens to Depositors’ Money if A Bank Shuts Down?
Your money should be safe even if your bank fails. FDIC insurance covers up to $250,000 per depositor and per account ownership group, so it protects almost all banks.
If the FDIC can’t find a good buyer for the bank, it will give the investors their money back. But if your account value is more than $250,000, you might not be able to get back the whole amount.
Is it safer to use a credit union than a bank?
Credit unions aren’t generally safer than regular banks; they’re just an alternative that isn’t for profit.
Your money is just as safe in either type of account as it is in the other. The National Credit Union Administration (NCUA) protects credit union deposits up to $250,000.
The Federal Deposit Insurance Corporation (FDIC) does the same for bank deposits.
Who Was the Bank’s Owner?
Bill Biggerstaff, Robert Medearis, and Roger Smith started Silicon Valley Bank in 1983. It was a part of SVB Financial Group, which was a public company (SIVB).
On March 26, 2023, First Citizens Bank bought it.
Who Were Silicon Valley Bank’s Biggest Investors?
Silicon Valley Bank’s parent company, SVB Financial Group, is mostly owned by large investors. Some of the biggest owners are:
BlackRock Fund Advisors Alecta Pension Insurance Mutual JPMorgan Investment Management, Inc. The Vanguard Group, Inc.
Conclusion
When Silicon Valley Bank goes under in March 2023, it will be the biggest bank to fail since the 2008 financial crisis.
And since people were already worried about a recession, the crash made them even less sure about the economy.
The loss of the bank reminded us that the banking system has some flaws, like the fact that banks with less than $250 billion in assets don’t have to answer to anyone.
Thanks to quick action by federal regulators, depositors lost less money when SVB went bankrupt, and trust in the banking system and the economy as a whole was restored.
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