Make It Make Cents

The Story

SVB has people saying WTF. 

Tell me everything.

Strap in, this is going to be a bumpy Monday. On Friday, Silicon Valley Bank (SVB) collapsed and regulators took over. SVB, the nation’s 16th-largest bank, has clientele including venture capital firms and startups. For a bit, deposits into the bank skyrocketed — up to nearly $200 billion in early 2022. Just like with any bank, the cash doesn’t just sit there waiting for its owner: it gets moved around (think: as loans for people or businesses who need them or as investments). Back when interest rates were low, SVB invested in US Treasury bonds and mortgage-backed securities (MBS). But that turned out to be a terrible, horrible, no good, very bad mistake. 

I’m on the edge of my seat. 

We all know the economy hasn’t been in the best place recently. Tech companies have been struggling (cue the layoffs) and many had to dip into their accounts to pay their bills. SVB didn’t have enough cash on hand for all the demand (remember that big investment we talked about earlier?). So it had the idea to sell bonds to help fund the withdrawals. SVB lost $1.8 billion in the sale and before it could even catch up, venture capital firms dipped out. Then SVB’s stock plunged by 60% and its customers made a bank run (getting $42 billion worth out) before it all imploded. With SVB in the red, financial regulators took over and shut it down. Some companies feared they wouldn’t make payroll. Experts even claimed this could be the end of some startups.

What’s happening now?

After a long weekend of ‘will they or won’t they,’ the Fed, Treasury Dept, and Federal Deposit Insurance Corporation (FDIC) came through (kind of). But not until a second bank, Signature Bank, also failed. Starting today, customers of SVB and Signature Bank will be able to access their deposits in full. Both banks have shut down. In a joint statement, the federal agencies promised taxpayers wouldn’t be responsible for any “losses associated with the resolution” of the bank. The Fed will also create a special loan program that protects other institutions from the fallout.