A major bank has collapsed and the Federal Deposit Insurance Corporation has taken it over, prompting concerns about the overall health of the financial industry and of the U.S. economy more broadly.
On Friday, reports announced that the California Department of Financial Protection had shut down the Silicon Valley Bank, based in Santa Clara, California, and turned it over to the FDIC.
As its name implies, SVB, founded 40 years ago, has mainly been a lending firm for tech companies. According to NBC News, many of the companies which have worked with SVB are tech start-ups and venture capital firms, companies with sometimes unpredictable or volatile assets and market value. Because SVB mainly catered to tech-based clients, it has very few “mom-and-pop savings accounts,” NBC News reported.
SVB’s troubles became public earlier this week when its parent company, SVB Financial Group, announced that it would attempt to sell off $2.25 billion shares of SVB, even after it had already sold $21 billion in securities at a $2-billion loss, Vox reported. Rather than shore up the bank’s liquidity, the announcement caused a run, as spooked investors and account-holders then began dumping their stock and pulling their money out of their accounts.
“People started freaking out, and unfortunately, it would appear rightly so,” said Alexander Yokum, a banking analyst at CFRA Research.
The FDIC insures all accounts up to $250,000, so all SVB accounts with less than that amount are covered. Unfortunately, those accounts with a higher balance are insured only up to $250,000. The safety of the rest of their money remains uncertain, but the FDIC issued a statement on Friday that might calm some anxious account-holders: “As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
All SVB branches will reopen on Monday.
SVB is mainly a regional banking firm and has fewer than two dozen locations scattered throughout the country, so it may not be a household name. However, its demise has far-reaching implications for the stock market and perhaps the U.S. economy more generally since SVB is one of the largest banks to collapse in U.S. history, second only to Washington Mutual, which collapsed in 2008.
Treasury Secretary Janet Yellen told members of Congress on Friday that she was keeping an eye on “a few banks,” and several high-profile Silicon Valley investors, including Peter Thiel, have advised SVB account-holders to withdraw their money. In an interview with Glenn Beck, financial expert Carol Roth warned that some in power might even use SVB’s collapse — and the subsequent financial fallout — as a pretense to usher in a central bank digital currency.
“This is a very scary situation that can threaten our freedom, and it can threaten your wealth,” Roth told Beck.
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