Largest Bank Failure Since 2008: $209B Under FDIC Receivership

UPDATE: Since publication, a second bank has failed and a third is down 67% since the market opened this morning. New York-based Signature Bank, with assets totaling $110.36 billion and $88.59 billion in deposits was closed by New York state regulators. There are widespread market losses across the financial sector. The FDIC has assured that all depositors will be made whole at no burden to the taxpayers. SVB patrons should have access to all funds on Monday, March 13, 2023. Gold is up 2% today. A full article explaining the situation will be posted shortly.

The FDIC (Federal Deposit Insurance Corporation) made an emergency press release. A quote from the press release reads,

“Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver. The FDIC created the Deposit Insurance National Bank of Santa Clara (DINB) to protect insured depositors. At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank."

The California Department of Financial Protection and Innovation closed Silicon Valley Bank (SVB) and designated the FDIC as the receiver. SVB is the first FDIC bank to fail since Almena State Bank in Kansas on October 23, 2020. SVB was a major bank for venture-backed companies. Higher interest rates made raising venture capital incredibly challenging. At the end of December, SVB had $209B in assets and $175.4B in deposits. It is unknown what percentage of the deposits are insured. The SVB collapse is the most significant U.S. bank collapse since the 2008 collapse of Washington Mutual, with $307B in assets. 

SVB share prices fell by 60% on Thursday and another 60% during Friday premarket trades. The market does not believe the SVB collapse will spread throughout the financial system. Still, several other mid-sized and regional banks are under significant pressure. The fear of regional contagion is very real. At the time of publication,  four regional banks' share prices are down more than 20%. Treasury Secretary Janet Yellen testified to the House Ways and Means Committee  Friday morning that she was carefully monitoring a few banks. Yellen made the comments before the announcement of SVB's collapse. 

SVB had 17 branches in California and Massachusetts. 

The FDIC stated insured customers should have access to their money at DINB by Monday morning. DINB will operate SVB during regular business hours. Uninsured deposits (over $250,000 at the bank) will receive a receivership certificate for the remainder of the uninsured funds. 

When an individual or company declares bankruptcy, its assets are put into receivership. Suppose an individual declares bankruptcy. The individual will stand before a judge, who takes receivership. The judge will look at all the assets and liability claims. Assume the person has debts of $100,000, but all the assets only total $50,000. The judge would order the sale of the assets and then pay/negotiate with the creditors in priority of payment order. Some claimants will not be paid or will not get paid in full. The FDIC is the receiver of SVB’s assets and liabilities. Uninsured depositors may or may not receive funds depending on whether funds are available after the FDIC sells SVB assets. 

The FDIC (Federal Deposit Insurance Corporation) is an independent agency of the United States government. The FDIC claims to insure bank deposits of up to $250,000 per bank if the bank fails. Despite a popular misconception, the FDIC will not insure multiple accounts for $250,000 each. Instead, the insurance covers the depositor's total at an insured bank. Many people have wrong notions about how the FDIC works. Learn about the FDIC here.

The bank became an unmitigated middleman risk and now SVB customers will not have access to their money until Monday. People who had more than $250,000 may never see the excess again. Market uncertainty has led to massive pressure on surrounding banks. Uncertainty is another way of saying there is a lack of trust. When enough people stop trusting a bank, they make a bank run to get their money. Bank runs are not well-organized events where people behave with decorum and honor. Instead, imagine Black Friday at Best Buy with an insanely good deal on only five Apple computers and 1,000 people fighting over them. 

The other American banks could collapse, or bank runs could happen. However, the future is unknown. There are no guarantees. Hopefully, honorable and intelligent people will present positive solutions. However, if people can’t pay their bills due to increased inflation expenses and new borrowers are not applying for loans due to high-interest rates, it is predictable that more banks will likely have problems as we advance. 

There is no reason to panic, but being strategic makes sense. The future is always unknown; leaving money above $250,000 in a bank is 100% risk. Suppose you were an SVB client two days ago and somehow knew the bank would collapse. Would you leave your money above $250,000 in the bank to fight with the FDIC or withdraw it and put it somewhere safe, like precious metals? 

If any blog readers have an account at SVB with funds above $250,000, you can contact the FDIC at 1-866-799-0959.

Call the U.S. Gold Bureau Today.

(800)775-3504