Are Silicon Valley Bank clients safe and will they be able to use their funds Monday? President Biden says yes.
Silicon Valley Bank (SVB) was a major financial institution that served the tech industry and start-ups for 40 years. It collapsed on Friday, March 10, 2023, after failing to raise enough capital to meet its obligations. It was the second-largest bank failure in US history, after Washington Mutual in 2008.
The bank’s troubles began when it reported a $4.5 billion loss in the fourth quarter of 2022, due to bad loans and investments in the crypto sector. The bank also faced a lawsuit from the Securities and Exchange Commission (SEC) for allegedly misleading investors about its financial condition and risk exposure.
As the bank’s stock price plummeted, depositors started to withdraw their money, creating a bank run. The bank tried to secure a bailout from the US Treasury, but the deal fell through at the last minute. The bank also failed to find a buyer or a merger partner, despite reaching out to several potential suitors.
The bank’s collapse has sent shockwaves across the tech world, as many start-ups, venture capitalists, and crypto firms relied on SVB for funding, banking, and advisory services. Some of the bank’s clients include Airbnb, Stripe, Coinbase, and BlockFi. The latter filed for bankruptcy on Thursday, March 9, 2023, after losing $227 million in unprotected funds at SVB.
President Joe Biden and the White House administration decided to take an immediate action in order to protect Silicon Valley Bank depositors. In a statement released Sunday, president Biden praised the “decisive action” by federal financial agencies in an effort to protect everyone involved in the process, including the US banking system as a whole.
“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” Biden said in a statement Sunday, according to The Hill, adding he would deliver remarks on how to protect the banking system on Monday.
“I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again,” he added.
In a united public statement Sunday, the Department of the Treasury, Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) declared that depositors of the esteemed Silicon Valley Bank shall have the ability to fully access their funds by the forthcoming Monday. This monumental announcement has been greatly commended by members of the Democratic Party, who have deemed this decision as a crucial safeguard for the welfare of the bank, its clientele, and the workforce who rely upon it for their financial sustenance.
Senator Alex Padilla (D-Calif.) has praised the regulators’ actions towards fully safeguarding all deposits made in the Silicon Valley Bank. The Senator believes that this decisive measure shall guarantee that millions of employees across the United States will be paid promptly, and it shall also contain any detrimental impact on the economy of both California and the nation. The Senator has further clarified that taxpayers shall not be held responsible for the bank’s resolution, and that the protection provided does not extend to its shareholders.
According to sources, the regulators had purportedly planned to auction off the Silicon Valley Bank on Sunday afternoon. However, it remains uncertain if these efforts shall persist into Monday, owing to the recent actions announced by the Department of the Treasury and its accomplices. On Sunday, Treasury Secretary Janet Yellen and other officials voiced their opposition towards a potential bailout that could safeguard the bank and its shareholders. Instead, the authorities shall prioritize restoring the full funds of depositors who have invested in the bank.
Rep. Jimmy Panetta (D-Calif.) echoed a similar sentiment in a statement issued Sunday.
“These actions by the Treasury, Federal Reserve, and FDIC, are absolutely necessary to protect not the bank, but the bank’s customers, who were put at risk through no fault of their own,” Panetta said in a statement.
“In the days ahead, we must fully determine what caused this crisis, and what must be done to better protect customers deposits in the future.”
On the other hand, Rep. Eric Swalwell (D-Calif.) publicly criticized former President Trump and Republicans in 2018 for passing the Reform Act in 2018 that lifted regulations on the bank. He also pointed out his concerns if the last week’s scenario was a result of possible market manipulation which according to him, required deep and thorough investigation and finding the management accountable for their actions.
“As to the ‘how could this happen’ concern, it’s clear that the efforts by former President Trump and Kevin McCarthy to pass the ‘Reform Act’ in 2018 inoculated Silicon Valley Bank from stress tests and regulation that would have prevented this crisis,” he added.
“This is a lesson: the weakening of bank regulations for small and medium sized banks allowed this mismanagement to go unchecked.”