Silicon Valley Bank Clients Will Get Funds—Even Those That Weren’t Insured, Government Says

The U.S. government announced that all customers of the failed Silicon Valley Bank (SVB) will have access to their funds on Monday morning, including deposits worth more than the $250,000 limit for Federal Deposit Insurance Corporation (FDIC) insurance.

“This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the Treasury Department, Federal Reserve, and FDIC said in a joint statement on Sunday night.

The move backstops the $175 billion that was held at the bank—about 85% of which was uninsured, according to recent regulatory filings by SVB. Additionally, the Federal Reserve announced that it was creating a new lending facility for the nation’s banks to protect bank customers and prevent other small and regional banks from collapsing.

Authorities added that taxpayers will not bear any costs for losses associated with unwinding the bank, and that senior management of SVB would be removed. The statement also said that the agencies were extending similar protection to depositors of Signature Bank of New York, which state regulators closed on Sunday.

The move comes after some on Wall Street and Silicon Valley warned SVB’s collapse could cause greater economic problems if those with more than $250,000 in their accounts lost money, or saw their funds tied up for weeks or months while the bank’s assets are unwound.

SVB catered to tech startups, and many had millions or tens of millions on deposit at the bank—money they used to run their companies and pay staff. One startup founder called the insured amount “chump change” for most depositors, and estimated that hundreds or even thousands of startups had uninsured cash at SVB.

How the federal government is responding

Ahead of Sunday’s joint statement, little was known about the federal government’s response to the Silicon Valley Bank fallout, which began on Friday. Treasury Secretary Janet Yellen said Sunday morning that the federal government would not bail out Silicon Valley Bank, but is working closely with banking regulators to help protect the thousands of depositors who are concerned about losing their money.

“We’re very aware of the problems that depositors will have, many of them are small businesses that employ people across the country,” Yellen said in an interview with CBS’ Face The Nation. “We certainly are working to address the situation in a timely way.”

Silicon Valley Bank, founded almost 40 years ago, is the nation’s 16th-largest bank. Its collapse—the second biggest bank failure in U.S. history—sent shockwaves across the financial system and shook the tech industry. But Yellen on Sunday tried to reassure Americans that the fallout does not pose systemic risk. “America’s economy relies on a safe and sound banking system,” she said. “Americans need to feel confident that the banking system is safe and sound.”

Silicon Valley Bank’s collapse was largely tied to the Federal Reserve’s ongoing series of interest rate hikes designed to cool the economy and fight inflation, Yellen said. The bank struggled when its depositors panicked and began withdrawing their money and the bank had to sell bonds at a $1.8 billion loss to cover the withdrawals. Many of the bank’s assets, such as bonds and mortgage-backed securities, also lost market value as interest rates climbed.

Some economic analysts have said that the troubles at SVB were also due to the recent spate of challenges for tech companies, which have seen stock prices plummet over the last 18 months, prompting massive layoffs across the industry. But even though the bank mostly serves tech workers and venture capital-backed companies, Yellen emphasized that the high interest rate environment is the most likely reason for the fallout. “The problems with the tech sector aren’t at the heart of the problems at this bank,” Yellen said.

She emphasized that the response would be much different from the 2008 financial crisis, when it bailed out several of the biggest banks. “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out…and the reforms that have been put in place means we are not going to do that again,” she said. “But we are concerned about depositors and are focused on trying to meet their needs.”

She added that she expects regulators to consider “a wide range of available options,” including the acquisition of SVB by another institution. So far, no buyer has stepped forward, but Bloomberg reported that SVB Securities, the bank’s investment banking arm, is exploring ways to buy the firm.

Calls to bail out depositors

The move to make depositors whole follows calls from investors and lawmakers for the federal government to step in to prevent other banks from coming under pressure.

“We must make sure all deposits exceeding the FDIC $250k limit are honored,” Eric Swalwell, a Democratic congressman from California, wrote on Twitter. “Banking is about confidence. If depositors lose confidence on the safety of their deposits over 250k then we are in trouble.”

Billionaire hedge fund investor Bill Ackman issued one of the most urgent calls for the government to intervene and guarantee all of Silicon Valley Bank’s deposits, warning the U.S. could experience a bank run in which a large number of depositors simultaneously tried to withdraw their funds.

“The unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday,” he wrote on Twitter.

President Joe Biden did not publicly address the situation during his weekend trip to Wilmington, Del., but he told reporters Sunday night that he would make remarks on the issue on Monday morning.

Biden also spoke with California Governor Gavin Newsom on Saturday about “efforts to address the situation.” The White House did not provide additional details on next steps, and did not respond to a request for comment.