Silicon Valley Bank (SVB) was seized by the Federal Deposit Insurance Corporation (FDIC) on May 1, 2020, following a series of withdrawals from depositors. The FDIC determined that the bank had become “critically undercapitalized,” which meant it could no longer support itself financially. This raises questions about the safety of depositors’ funds and their guaranteed deposits.
The History of Silicon Valley Bank
Silicon Valley Bank is a financial institution with a 30-year history. It was founded in 1986 with the mission of serving technology and life-science companies in California and around the world. SVB managed to become one of the largest banks in the state with $21.4 billion in assets and over 4,350 employees.
Depositors Pull Cash
Depositors had been fleeing Silicon Valley Bank prior to the FDIC seizure. On April 24, 2020, it was reported that customers had withdrawn around $6 billion in deposits in the previous month.
This rapid cash outflow was a major cause of concern for SVB’s management, and the FDIC decided to intervene on May 1.
The FDIC Takes Over
The FDIC stepped in on May 1 and took control of the bank. The FDIC is the government agency responsible for protecting depositors’ funds and guaranteeing deposits up to $250,000.
The FDIC announced that it had transferred all of SVB’s assets, deposits and liabilities to East West Bank of Pasadena, California. East West Bank is now responsible for all of SVB’s depositors and customers.
Impact on Depositors and Customers
Depositors of Silicon Valley Bank can still access their funds without any interruption, and their deposits are still guaranteed up to $250,000 by the FDIC.
Customers of SVB will also be unaffected, as East West Bank has assumed all of SVB’s customer accounts, loans, and other obligations.
Credit Rating Downgraded
In the wake of the FDIC seizure, Silicon Valley Bank was downgraded by Moody’s, a rating agency that assigns credit ratings to financial institutions. The bank was downgraded from Aa3 to Baa1, which indicates a significant deterioration in its financial position.
Implications for the Economy
The FDIC seizure of Silicon Valley Bank has raised questions about the safety of the banking system. It is a reminder that banks can still become undercapitalized and that depositors should be considered when making banking decisions.
The seizure of Silicon Valley Bank is also a sign of the economic impact of the COVID-19 pandemic. Banks are struggling to stay afloat as businesses falter and demand for loans decreases.
Call to Action
The FDIC seizure of Silicon Valley Bank is a reminder of how fragile our banking system can be. If you’re interested in learning more about the implications of the FDIC seizure, share this article on social media to spread awareness.