More than $40 billion in deposits exited SVB last week, before the bank collapsed, after major clients pulled their cash out in a bank run immediately after the California lender issued a mid-quarterly report that showed that it had sold $21 billion worth of securities at a loss
Rising interest rates caused a crisis for the bank after investing in longer-term mortgage securities with more than 10 years to maturity, rather than shorter-maturity Treasuries during a period of low borrowing rates. This led to a lopsided imbalance between its assets and liabilities.
SVB also heavily relied on institutional deposits, with most individual deposits consisting of accounts of more than $250,00o, making it more vulnerable to a run.
Signs that the bank was in trouble were as early as the end of 2022, when it had experienced a decline in deposits to $173 billion at year-end from $198 billion last March.
“SIVB was in a league of its own: a high level of loans plus securities as a percentage of deposits, and very low reliance on stickier retail deposits as a share of its total deposit base,” wrote Michael Cembalist, the chairman of market strategy at JP Morgan Asset Management.
Federal Regulators Reassure Customers That All Deposits Will Be Protected
Meanwhile, regulators in New York State shut down Signature Bank over the weekend in another bank failure.
After the collapse of both banks, federal regulators intervened over the weekend and took control of SVB in order to guarantee that depositors would not suffer losses as the panic threatened to spread to other local banks.
Mayopoulos did not specify a limit on FDIC protection, but his comments fell in line with the government’s promise that the backstop would be structured in a “manner that fully protects all depositors.”
However, the FDIC is only allowed on paper to insure $250,000 worth of deposits per customer.
The CEO also referred to actions being made to deal with the bank’s estimated $6.7 billion worth of venture-related debt issued in 2022 to early and mid-stage tech startups.
“Those arrangements are in place, and we will honor them,” said Mayopoulos.
“We are also open for business for any new customers. We are actively opening new accounts of all sizes and making new loans,” he said.