An overview of the Silicon Valley Bank collapse

Silicon Valley Bank (SVB) was a bank that provided banking services to many technology companies. It recently experienced a bank run, which is when a large number of customers withdraw their deposits simultaneously. The SVB bank run was likely due to Silicon Valley Bank customers’ fears of a collapse. These fears resulted in a liquidity crisis as the bank didn’t have enough cash reserves to honor customer requests to withdraw their funds.

As a result, California regulators intervened and closed down the bank, placing it under the control of the US Federal Deposit Insurance Corporation (FDIC). The Fed, Treasury and FDIC announced that they would provide additional funding to ensure that all deposits at Silicon Valley Bank, both insured and uninsured, would be paid in full.

Usually, the FDIC only insures up to $250,000 per depositor at a bank. To recover amounts in excess of $250,000, the customer would be required to go through a claims process handled by the FDIC. The entire process, which involves liquidating the bank’s assets to cover its debts, could take years.  

However, due to a special provision in the Federal Deposit Insurance Act (FDI Act), the Systemic Risk Exception, uninsured deposits can be protected and recovered without the depositor going through the normal FDIC claims process. To invoke the Systemic Risk Exception, the FDIC, Federal Reserve and Treasury must determine that not doing so would have serious adverse effects on economic conditions or financial stability.

This provision is being enforced, and on March 13, 2023, all Silicon Valley Bank customers, both fully insured and underinsured, are expected to have full access to their funds.