Two days after it announced plans to attempt to shore up its balance sheet, Silicon Valley Bank was taken over by the Federal Deposit Insurance Corp. Friday, following a massive run on deposits at the tech lender.
It was a shocking, sudden, and complete collapse—the biggest bank failure since the Great Recession (and the second-largest in history). The speed at which it came has left investors, customers, and onlookers with lots of questions about what happens to the money that remains in the bank—and what the ripple effects will be.
Why did regulators shut down SVB?
Late Wednesday, SVB said it was hoping to raise $2.25 billion via a stock sale and investments in order to strengthen its balance sheet, as deposits from startups struggling for funding have dropped in recent months. That spooked both customers and, more importantly, venture capitalists, many of whom advised their clients to pull their money from the bank.
As word of that advice leaked out, other customers began to pull money out at a phenomenal rate. SVB had reportedly hired an adviser to explore a possible sale, but with the run on the bank happening, it found itself at risk of collapse. That’s when California and the FDIC stepped in, closing SVB and creating the new Deposit Insurance National Bank of Santa Clara, which took over all insured deposits at SVB.
What happens to companies that still have money there?
All insured depositors will have full access to their insured deposits (up to $250,000) no later than Monday, the FDIC announced.
What about customers who aren’t insured? How many of them are there?
For corporate customers, $250,000 isn’t a lot, especially for those who have closed funding rounds. SVB clients who had accounts with more than $250,000 (the excess of which is not covered by the FDIC) will be paid an advance dividend within the next week. They’ll also be given a receivership certificate for the remaining amount of their uninsured funds, meaning as the FDIC sells the assets of the now-closed bank, they’ll be eligible for dividend payments from that. But it could be quite a while before they see that money (and there’s no telling how much it will be).
As for how many companies that will impact, it could be a lot. Bloomberg reports that “north of 93%” of the bank’s deposits were uninsured, per a recent regulatory filing. That works out to $150 billion or more.
Will this impact other banks that do business in Silicon Valley?
Long term, that remains to be seen, but some financial institutions are already feeling the ripple effects.
Shares of First Republic Bank were down 20% in midday trading Friday and PacWest Bancorp tumbled 35%. In an effort to get in front of potential panic from its own customers and shareholders, First Republic made an 8-K filing with the SEC, saying its “deposit base is strong and very-well diversified” and its “liquidity position remains very strong.”
Will this impact VC funding?
That’s the question a lot of people are asking. It’s unclear right now how many venture capitalists had their money at SVB—and how many had not pulled it out.
What’s going to happen to startups that used SVB?
That, too, is unclear. While the FDIC advance dividend will help some for a bit, if they’re locked out of their assets for any notable length of time, it could mean they’re unable to pay their bills and might have to take out emergency loans.
At least one payroll company, Rippling, said it would have to delay today’s payroll payments because of SVB exposure, but added that it would not be an issue going forward.
How big was SVB?
The bank had 17 branches in California and Massachusetts. It had deposits of $175.4 billion as of December 31, 2022, according to the FDIC.
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