After Silicon Valley Bank's shutdown, uninsured depositors face tense
wait
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[March 11, 2023] By
Pete Schroeder
WASHINGTON (Reuters) - Silicon Valley Bank's high level of uninsured
deposits helped kick off the run that led to the bank's closing down,
and now any of those depositors will need to hold their breath to see if
bank regulators can recover enough to make them whole.
Friday’s announcement by the Federal Deposit Insurance Corporation that
the bank was closed came with few specifics on what will happen to bank
customers who held more than the $250,000 per account that is guaranteed
by the government.
In prior large bank failures like IndyMac and Washington Mutual, the
FDIC found other firms to take on the assets and keep deposits intact.
But failing that, uninsured depositors will be left with a portion of
whatever funds the FDIC can raise selling off the bank's assets.
SVB Financial Group's Silicon Valley Bank had a relatively high amount
of uninsured deposits as it courted tech workers and venture capital
firms. The FDIC said on Friday the amount of uninsured deposits at the
bank was “undetermined,” likely complicated by the rush of bank
customers to remove uninsured funds. But data submitted to the FDIC by
the bank at the end of 2022 showed that 89% of its $175 billion in
deposits were uninsured.
All insured deposits will be accessible in full no later than Monday
morning, but the FDIC said uninsured depositors will get a “receivership
certificate,” and that future dividend payments “may be made” to pay off
uninsured funds as the bank’s assets are sold. Customers with uninsured
deposits were told to call the FDIC.
An SVB spokeswoman referred questions to the FDIC. An FDIC spokeswoman
did not respond to a request for comment.
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People gather outside of the Silicon
Valley Bank (SVB) headquarters in Santa Clara, California, U.S.
March 10, 2023. REUTERS/Nathan Frandino
Regulatory experts say account holders with uninsured funds are not
typically individuals. Usually, accounts with such high funds are
companies that need cash on hand for payroll and other expenses. But
Silicon Valley Bank’s relatively well-off clientele could be the
exception, and the push for full repayment was already coming from
some corners.
“We must make sure all deposits exceeding the FDIC $250k limit are
honored," tweeted U.S. Representative Eric Swalwell, a California
Democrat. "Banking is about confidence. If depositors lose
confidence on the safety of their deposits over 250k then we are in
trouble.”
Beyond selling off the assets piecemeal, another possible move by
the FDIC would be to find another firm to take on all or a portion
of the assets. This move is typically preferred by the regulator as
a smoother process that ensures depositors are minimally disrupted
and usually kept whole. But that process can be lengthy, leaving
uninsured depositors in the dark.
“This will likely be similar to the failure of IndyMac Bank in
2008," said Joseph Lynyak, a partner with Dorsey & Whitney who
specializes in bank failures. "The FDIC closed that bank but had not
already lined up an assuming bank. It took several weeks to find an
investor.”
“The FDIC is likely negotiating a similar arrangement as we speak,
with the result that virtually all assets and liabilities of Silicon
Valley Bank will be transferred to the assuming bank in a short
period of time.”
(Reporting by Pete Schroeder in Washington; Editing by Megan Davies
and Matthew Lewis)
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