Old Uncle Sam once again stepped in to bail out the banking sector, with U.S. officials announcing over the weekend that the government would ensure all deposits – even the billions in uninsured funds – kept at the shuttered Silicon Valley Bank (SVB) would be restored to customers. Those same protections will also cover money kept at Signature Bank of New York, which closed following SVB’s collapse.
The Federal Deposit Insurance Corporation (FDIC) generally only insures bank deposits up to $250,000. Thus, when SVB collapsed, it seemed like tech startups and others who stored large amounts of cash in the bank would be left in the lurch. Roku noted on Friday it had nearly half a billion dollars in its SVB accounts, and SVB itself said in its Q4 2022 10-K report that more than $151 billion in deposits held by the bank were uninsured.
But the U.S. government swooped in, announcing the FDIC would cover the balance of uninsured deposits and ensure that all customers could access their money by Monday, March 13. The relief applies to both SVB and Signature. While it will cover deposits, the FDIC noted its actions would not cover losses suffered by stockholders and “certain unsecured debtholders.”
In a thread on Twitter, President Joe Biden noted the money the FDIC is using for the bailout will not come from taxpayers, but instead be taken from Deposit Insurance Fund. The fund itself is comprised of the quarterly fees assessed on insured banks as well as the interested earned on the money collected. According to an FDIC report, there was $128.2 billion in the Deposit Insurance Fund as of the end of 2022.
It's unclear whether the fund alone will cover the full amount of uninsured deposits across both banks. SVB’s collapse came after depositors withdrew $42 billion in a single day. The FDIC said SVB alone had $175.4 billion in deposits at the end of 2022, the vast majority of which were apparently uninsured.
Looking forward, Biden said the management of both banks will be fired. He added he will ask Congress and banking regulators to strengthen rules which might prevent similar failures from happening again.
“We must get a full accounting of what happened and why so those responsible can be held accountable.,” he wrote. “In my Administration, no one is above the law.”
While their deposits will be restored, tech startups – which were among SVB’s key customer groups – will have a large hole to fill in the bank’s absence. The longer-term impact of the bank’s failure on the emerging tech market at this point remains unclear.