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What Happened to Silicon Valley Bank?

Silicon Valley Bank was a large specialty bank focused on the venture capital industry. It was a relationship bank that focused on providing services to corporations and high-net-worth individuals in industries such as technology and biotech.

The bank grew tremendously in recent years thanks to the boom in venture capital. This left the bank with a ton of new deposits which were subsequently invested by the bank into low-yielding bond securities. These bond securities lost a dramatic amount of value when interest rates surged over the past 18 months. Meanwhile, the bank saw much of its deposit base leave as the fortunes of the venture capital sector faded. All this led to Silicon Valley Bank having a gap in its balance sheet which it was unable to fill.

Government regulators ultimately seized Silicon Valley Bank late last week. While shareholders of the bank are likely to lose most or all of their investment, the government backstopped all the depositors of the bank, including those who were over the traditional FDIC bank insurance limit.

What Is The FDIC? What Does It Do?

The Federal Deposit Insurance Company (FDIC) is a U.S. government agency that was created in 1933 as a result of the systemic bank failures that occurred during the Great Depression.

The FDIC functions by collecting premiums from member banks. These serve as a backstop to guarantee the accounts of all accounts at FDIC-insured banks up to a given threshold, currently $250,000. This insurance applies to:

  • Checking accounts
  • Savings accounts
  • Money market accounts
  • Negotiable Order of Withdrawal accounts
  • Certificates of deposit (CDs)
  • Cashier’s checks, money orders, and other official items issued by a bank

The guarantee applies to all U.S. bank accounts, regardless of the citizenship or residency of the account holder.


2023-03-14 16:30:00