Uninsured Deposits Focus After SVB
Reuters writes that, "Breakingviews: SVB dies, but its disease lives on," which says, "Nearly three years with no U.S. bank failures just came to an unseemly end. Silicon Valley Bank, which counts among its customers half of all U.S. venture-capital backed startups, was taken into receivership by the Federal Deposit Insurance Corp on Friday after a slide in deposits and a hasty capital raising failed to restore confidence. By acting quickly, regulators have stopped one crisis, but may have laid the groundwork for more." They explain, "Customers in American banks typically don't have to worry about what happens if a lender goes under, thanks to a guarantee from Uncle Sam to pay back depositors if an institution fails. But there's a big exception. Balances over $250,000 aren't covered. Above that level, customers must fight with other creditors for scraps." Reuters tells us, "The bank owned by SVB Financial (SIVB.O) relied more heavily on large, and therefore, uninsured, deposits than other banks. Some 94% of the funds held at SVB weren't guaranteed at the end of 2022, according to its regulatory filings, compared with 52% at JPMorgan (JPM.N), and 58% at Silvergate Bank, a crypto-focused lender that is also closing its doors this week after depositors turned tail." They write, "Anyone with uninsured deposits is now, effectively, on notice that these balances aren't guaranteed when push comes to shove. That message probably gets forgotten in peacetime. And while few banks have the concentration of tech-sector risk that made SVB's customers lose their nerve, many have a substantial reliance on deposits that are now revealed to be anything but rock solid. If the regulators' goal was to make mega-banks like JPMorgan and Bank of America (BAC.N) even bigger, they couldn't have found a better way." See also our March 2 News, "MF Yields Up 25 Bps, Record Assets in Feb.; FDIC Quarterly; Cunningham," the FDIC's release on Silicon Valley Bank, "FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California" and the release, "Joint Statement by the Department of the Treasury, Federal Reserve, and FDIC."
