Silicon Valley Bank’s collapse was as surprising as it was unique, not least because of the size and nature of the failed bank’s depositors.
In an ever-divided United States, this has brought up a debate over whether depositors should even be protected in the first place.
What are the numbers?
Standard practice in the US is that all individual deposits up to US$250,000 are insured by the Federal Deposit Insurance Corporation (FDIC).
But with most of SVB’s clients being venture capital firms and tech companies, the majority – some estimate 95% – of deposits exceed this threshold.
Per SVB’s March 8 SEC filing for its failed equity fundraiser: “As of December 31, 2022, on a consolidated basis, we had total assets of US$211.8bn, total investment securities of US$120.1bn, total loans, amortised cost, of $74.3bn, total deposits of US$173.1bn and total SVB Financial stockholders’ equity of US$16bn.
Since the bank’s investors are getting stiffed (more on that in a bit), there is only one relevant number here: total deposits of US$173.1bn, US$164.4bn of which is uninsured, if estimates are accurate.
Of course, this doesn’t take into account the mass withdrawals from last week’s bank run, so there’s no way of knowing exactly how much is at play right now.
Nonetheless, statements from US president Joe Biden on Monday suggested that every dollar holed up in SVB will be given back to depositors.
Biden also made assurances that all deposits will be made available at no expense to the taxpayer.
Does that mean the government is going to stump up possibly more than US$100bn? No.
Fees charged to banks for deposit insurance (i.e. insurance premiums paid by other banks) will instead cover uninsured deposits above US$250,000, Biden announced.
While there is no apparent obligation to honour 100% of deposits, it is being framed as a matter of trust and confidence in the banking system.
“If depositors lose confidence on the safety of their deposits over 250k then we are in trouble,” Tweeted Democratic representative Eric Swalwell.
I’m working with my CA colleagues to address the Silicon Valley Bank crisis. We must make sure all deposits exceeding the FDIC $250k limit are honored. Banking is about confidence. If depositors lose confidence on the safety of their deposits over 250k then we are in trouble.
— Rep. Eric Swalwell (@RepSwalwell) March 10, 2023
Not everyone appears as sympathetic to SVB’s depositors. “Why should our tax dollars pay for the risky decisions of venture capitalists and startups?” responded one Tweeter, clearly unaware that the taxpayer is not in fact picking up the tab.
“Not our problem, figure it out,” read another.
Presidential candidate for 2024 Vivek Ramaswamy of anti-EGS fund fame also seemed unsympathetic to depositors, attempting to paint the redemptions as a bailout of California tech groups in a debate with entrepreneur David Sacks.
But Sacks warned Ramaswamy of a large-scale bank run “if you send the message across this country right now, in the middle of a banking crisis, that deposits are not safe”.
David Sacks & Vivek Ramaswamy Debate the Fed’s Response to SVB
“It is not a bailout of those stockholders. What we are doing here is protecting deposits and if there is a shortfall, it is not going to be paid for by the taxpayer. It is being paid for out of insurance premiums… https://t.co/EgnNmEr0ls pic.twitter.com/WV35wUadan
— Chief Nerd (@TheChiefNerd) March 14, 2023
Some of SVB’s depositors didn’t bother waiting for news of a safety net, instead selling their deposits over the weekend for as low as 55 cents on the dollar to shore up funds to pay staff and running costs.
As for Signature Bank, FDIC, which took control of the bank, said it had US$88.6bn in deposits as of December 31, 2022, though a more up-to-date figure was not disclosed.
What about investors?
As for equity investors into SVB and corporate bondholders, they are expected to lose everything, as no bailout of the banks a la 2008 is being considered.
Sacks argued that that should never have happened either.