Is SVB the "Safest Bank on the Planet" After FDIC Guarantees 100% Backing Of All Deposits

Silicon Valley Bank’s (SVB) unanticipated collapse sent shockwaves across the global banking sector and created market panic. Benchmark S&P 500 and Dow Jones Industrial Average indexes recorded their worst performance since June last year as the 16th-largest bank in the U.S. crumbled. 

But despite being the second-largest banking collapse in history, the immediate response from federal agencies including the Federal Deposit Insurance Corp. (FDIC) and the Federal Reserve was heralded, mitigating market fears and easing concerns regarding the economic situation. 

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Joint Statement From FDIC And Federal Reserve

The FDIC typically insures only up to $250,000 per depositor per insured bank. Any amount held over this limit is considered uninsured and is only repaid to depositors after the assets of a collapsed bank are sold. 

In the aftermath of the largest banking failure in the U.S. since 2008, the FDIC announced that 100% of deposits held by investors would be repaid to depositors, preventing a global banking crisis. The emergency federal efforts have allowed the U.S. banking sector to ward off a market collapse. 

This comes as the sudden shutdown of SVB caused startups and venture capitalists to panic and withdraw $42 billion in one day, resulting in the largest bank run since 2008. Silicon Valley Bank had one of the highest shares of uninsured deposits, with over 94% of its accounts holding over the federal $250,000 insurance limit, according to 2022 data from S&P Global Market Intelligence.

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“We are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” said a joint statement from Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen, and FDIC Chair Martin Gruenberg.

To this end, the FDIC created a full-service bridge bank — the Silicon Valley Bridge Bank N.A. — to implement orderly repayment of all insured and uninsured deposits. The Federal Reserve plans to address any immediate liquidity pressures. 

“This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed stated in a press release. 

Why Is SVB Special?

Not all banks are poised to receive similar support from federal agencies. Yellen testified before Congress that all banks will not receive similar support from the FDIC and the government. The Silicon Valley Bank, being the 16th-largest bank in the U.S., posed a systemic market risk to the U.S. and global banking sectors. 

Uninsured deposits will only be covered if the “failure to protect uninsured depositors would create systemic risk and significant economic and financial consequences,” Yellen told Congress. 

After the government took over SVB, Tim Mayopoulos, the newly appointed CEO of the bridge bank, asked customers to open new accounts and redeposit withdrawals. 

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“The No. 1 thing you can do to support the future of this institution is to help us rebuild our deposit base, both by leaving deposits with Silicon Valley Bridge Bank and transferring back deposits that left over the last several days,” Mayopoulos said. “If you, your portfolio companies or your firm moved funds within the past week, please consider moving some of them back as part of a secure deposit diversification strategy. We are also open for business for any new customers. We are actively opening new accounts of all sizes and making new loans.” 

The FDIC announced that both new and existing deposits will be 100% insured, with deposits having 100% access to their funds. 

What Happens To Startups Now?

The biggest concern for all venture capitalists and startup CEOs with deposits in SVB was the access to funds and making bi-monthly payroll. Thanks to the FDIC’s immediate response, depositors had full access to their money from March 13. 

Silicon Valley Bank’s sudden collapse has shaken the startup sector as the bank specialized in venture debt and startup financing. Several other financial institutions have stepped up in the wake of the SVB crash. StartEngine, for example, is a popular equity crowdfunding platform that allows anyone to invest in startups, including StartEngine itself. StartEngine’s CEO, Howard Marks, quickly announced they would fast track any company affected by the SVB collapse to help them raise funds. 

Equity Crowdfunding has slowly been taking VC market share as it relates to total amounts raised, with several raising millions and tens of millions. RAD AI, for example, has already raised over $3.4 million on Wefunder, and Gameflip is nearing $1 million raised. .

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