Silicon Valley Bank collapse: What should you do if your bank closes down?

The FDIC is a U.S. government corporation that insures money deposited in commercial banks and savings banks.

The bank’s parent group, SVB Financial Group
SIVB,
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lost a record 60% of its value on Thursday, after reporting losses of $1.8 billion from securities sales, cutting its full-year guidance, and announcing plans for a $2.25 billion equity offering.

The stock was halted premarket Friday amid reports the company is seeking a buyer.

See also: What is a stock-trading halt and why do exchanges order them?

The issues here appear, at first glance, to be industry-specific. Silicon Valley Bank was a tech-industry focused lender — and not a typical retail bank. What’s more, the 2008 financial crisis led to a major regulatory overhaul of the financial-services industry, particularly in relation to subprime lending.

Still, the worry remains that if this bank closes its doors, other banks could tip too. Billionaire hedge-fund manager Bill Ackman tweeted Friday: “The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails and the dominoes continue to fall.” He also said government intervention “should be considered.”

On Friday morning, Treasury Secretary Janet Yellen told Congress: “There are recent developments that concern a few banks that I’m monitoring very carefully, and when banks experience financial losses, it is and it should be a matter of concern.”

There were 561 bank failures from 2001 through 2022, according to data from the FDIC. That was over a two-decade period, including the Great Recession when approximately 465 banks failed. There are approximately 4,500 FDIC-insured banks currently operating in the U.S.

With $209 billion in assets through the end of 2022, Silicon Valley Bank is the second-largest bank failure after Washington Mutual’s 2008 failure. Washington Mutual Bank had $307 billion in assets, according to the FDIC.

What do you do if your bank closes down?

First, the good news: “No depositor has ever lost a penny of insured deposits since the FDIC was created in 1933,” according to the FDIC. The FDIC guarantees $250,000 per depositor, per insured bank. For sums above that amount, customers would typically need to file a claim for the remaining amount.

In the event of a bank failure, the FDIC says it has two roles: 1. The FDIC insures the bank’s deposits. 2. As the receiver, the FDIC sells and collects the assets of the failed bank in question, and settles its debts, “including claims for deposits in excess of the insured limit.”

Silicon Valley Bank depositors are going to have “full access to their insured deposits no later than Monday morning, March 13, 2023,” the banking regulator said.  

“The FDIC will pay uninsured depositors an advance dividend within the next week,” it said in a statement. “Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds.”

“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined,” the FDIC added. “The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.”

SEC filings from Silicon Valley Bank’s parent SVB Financial Group say the bank had an estimated $151.5 billion in uninsured deposits in U.S. offices through the end of 2022.

Meanwhile, “loan customers should continue to make their payments as usual,” said an FDIC website created specially for Silicon Valley Bank depositors. “Silicon Valley Bank’s official checks will continue to clear,” the FDIC website also said. 

Experian
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one of the big three credit-reporting agencies in the U.S., provides some advice for customers who may find themselves in a situation like SVB’s depositors, and also helps ease their concerns.  

“When a bank fails, the Federal Deposit Insurance Corporation will arrange the sale of the bank customer’s assets to a healthy bank, or, less commonly, the FDIC will pay the bank deposits back directly,” it says. “The truth is, the likelihood of losing your money is extremely small as long as an FDIC-insured institution holds it.”

SVB closure is a ‘wake-up call’ for bank customers

“The first bank failure since 2020 is a wake-up call for people to always make sure their money is at an FDIC-insured bank and within FDIC limits and following the FDIC’s rules,” said Matthew Goldberg, analyst at personal-finance website Bankrate.com. 

“The FDIC provides great resources with its BankFind Suite and Electronic Deposit Insurance Estimator (EDIE) feature that people should use and be aware of,” he added.

“Even during times when there are no bank failures or few bank failures, you always have to make sure your money is safe and within FDIC limits and rules at an FDIC-insured bank,” Goldberg said. “Today is a great reminder for people of this.”

SVB, meanwhile, cited rising interest rates putting pressure on public and private markets as clients face increasing levels of cash burn. 

Mark Haefele, chief Investment officer at UBS Global Wealth Management, said Friday that SVB’s troubles might serve as a cautionary tale for the U.S. Federal Reserve, which has committed to further interest-rate hikes in an effort to cool inflation.

“The Fed now has very clear evidence that they are having an impact on the financial system and the economy — rate hikes are starting to bite – and while that’s not enough to give them pause, it is something they will take into consideration,” he said in a research note.

(Ciara Linnane contributed to this story.)