The Fall of Silicon Valley Banks: What Should You Do If Your Bank Closes?

Silicon Valley Bank, which helps fund tech startups backed by venture capital firms, has closed. The California Department of Financial Innovation and Protection has made the decision to close the bank and the Federal Deposit Insurance Corporation has been designated as the recipient, making it the first FDIC-backed institution to fail this year.

The FDIC is a U.S. government corporation that guarantees deposits in commercial banks and savings banks.

The bank’s parent group, SVB Financial Group

lost a record 60% of its value on Thursday, after it reported a $1.8 billion loss from stock sales, cut its full-year guidance and announced plans to offer a 2.25-worth of shares. billion dollars.

The stock was put on a premarket pause on Friday amid reports that the company was looking for a buyer.

see more: What is a stock trading halt and why do exchanges order them?

At first glance, the problems here seem industry-specific. Silicon Valley Bank is a lender focused on the tech industry – and not a typical retail bank. Furthermore, the financial crisis of 2008 led to a major regulatory overhaul to the financial services industry, particularly with regard to subprime lending.

‘At the time of closing, the amount of the deposit exceeding the coverage limit was not determined.’

– Federal Deposit Insurance Corporation

However, the worry is still that if this bank closes, other banks may also be affected. Billionaire hedge fund manager Bill Ackman tweeted on friday: “Risk of failure and loss of deposits here is the next bank, the lowest capitalization bank faces runaways and failures and dominos continue to fall.” He also said government intervention “should be considered.”

On Friday morning, Finance Minister Janet Yellen told Conference: “There have been recent developments involving some of the banks that I’m monitoring very carefully, and when banks experience financial losses, that’s a matter of concern.”

There were 561 bank failures between 2001 and 2022, according to data from the FDIC. That was a span of two decades, including the Great Recession when about 465 banks went bankrupt. There are approximately 4,500 FDIC-insured banks operating in the United States

With $209 billion in assets through the end of 2022, Silicon Valley Bank is the second-biggest bank failure after the 2008 failure of Washington Mutual. The Washington Mutual Bank has assets of $307 billion, according to FDIC.

What would you do if your bank closed?

First, the good news: “No depositor has lost a penny of insured deposits since the FDIC was established in 1933,” according to the FDIC. The FDIC guarantees $250,000 per depositor, per insured bank. For amounts above that amount, the customer usually needs to file a claim for the remaining amount.

In the event of a bank failure, the FDIC says it has two roles: 1. The FDIC guarantees the bank’s deposits. 2. As the receiver, the FDIC sells and collects the assets of the failed bank in question and settles the bank’s liabilities, “including claims for deposits in excess of the limit. insured term.”

The banking regulator said depositors at Silicon Valley Bank will have “full access to their insured deposits no later than Monday morning, March 13, 2023”.

“The FDIC will pay an advance dividend to uninsured depositors next week,” the agency said in a statement. “Uninsured depositors will receive a receipt for the remainder of their uninsured funds.”

The FDIC added: “At closing, the amount of deposits in excess of the insurance limit was not yet determined. “The amount of uninsured deposits will be determined after the FDIC gathers more information from the bank and the customer.”

SECOND file from SVB Financial Group, the parent company of Silicon Valley Bank, said the bank has about $151.5 billion in uninsured deposits at its U.S. offices through the end of 2022.

Meanwhile, “borrowers should continue to make payments as usual,” said an FDIC website created specifically for Silicon Valley Bank. depositors. “Official examinations by the Bank of Silicon Valley will continue to be clear,” the FDIC website also said.

one of the three major credit reporting agencies in the US, provide some advice for customers who might be in the same situation as SVB’s depositors, and also help ease their worries.

“When a bank goes bankrupt, the Federal Deposit Insurance Corporation will arrange for the sale of the bank’s client assets to a healthy bank, or less commonly, the FDIC will directly return the funds. bank,” it said. “The truth is, your chances of losing money are extremely small as long as a Organizations insured by FDIC keep it.”

SVB’s closure is a ‘wake-up call’ for banking customers

“The first banking incident since 2020 is a wake-up call for people to always make sure their money is deposited at an FDIC-insured bank,” said Matthew Goldberg, an analyst at personal finance website Bankrate. and within the limits of the FDIC and subject to the rules of the FDIC”. .com.

“FDIC provides great resources with BankFind Suite And Electronic Deposit Insurance Estimator (EDIE) that everyone should use and be aware of,” he added.

“Even in times when there are no bank failures or few bank failures, you should always make sure your money is safe and within the limits of the FDIC and the rules at a bank,” says Goldberg. insured by the FDIC. “Today is a great reminder for everyone of this.”

SVB, meanwhile, said rising interest rates put pressure on public and private markets as customers face increasing levels of cash burn.

Mark Haefele, chief investment officer at UBS Global Wealth Management, said on Friday that SVB’s troubles could serve as a cautionary tale for the US Federal Reserve, which has pledged to raise interest rates further in an attempt to cool down inflation.

“The Fed now has very strong evidence that they are having an impact on the financial system and the economy – rate hikes are starting to take their toll – and while that isn’t enough to give them pause, it does. that’s something they’ll consider,” he said. said in a research note.

(Ciara Linnane contributed to this story.)


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