Silicon Valley Bank’s rapid withdrawals, management missteps created perfect storm
Depositors sucked $42 billion out of SVB on March 9 in rapid bank run
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The run on Silicon Valley Bank (SVB) was not your average bank run; it was so fast, it shocked even the most seasoned regulators as depositors siphoned $42 billon from the bank in just hours, leaving the firm with a negative cash balance of $958 million on March 9.
"This is a very large group of connected depositors, concentrated group of connected depositors, in a very, very fast run, faster than historical record would suggest" said Federal Reserve Chairman Jerome Powell in his press conference after policymakers raised interest rates by 25 basis points last week.
"The speed of the run, it's very different from what we've seen in the past, and it does kind of suggest that there's a need for possible regulatory and supervisory changes just because supervision and regulation need to keep up with what's happening in the world" Powell added.
THE FDIC AND YOUR BANKING DEPOSITS: WHAT TO KNOW
FDIC representatives Luis Mayorga and Igor Fayermark speak with customers outside the Silicon Valley Bank headquarters in Santa Clara, California, March 13, 2023. (Reuters / Brittany Hosea-Small / Fox News)
On Tuesday, Fed Vice Chair Michael Barr, the central bank’s point for bank supervision, will tell lawmakers at a hearing on the SVB and Signature Bank collapses that the banks’ top brass were asleep at the wheel, noting, "SVB's failure is a textbook case of mismanagement," according to prepared testimony. He also noted that "the bank failed to manage the risks of its liabilities. These liabilities were largely composed of deposits from venture capital firms and the tech sector, which were highly concentrated and could be volatile."
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HOW THE BANKING CRISIS MAY TIGHTEN UP LENDING
Complicating the speedy cash grab and poor management was a social media fury before California state regulators and the Federal Deposit and Insurance Corporation (FDIC) took possession of SVB.
"It is clear that numerous issues took place with SVB," Robert Wolf, former CEO of UBS Americas, now CEO of 32 Advisors, told FOX Business, noting that "social media and digital finance moved faster than we have ever seen in banking, causing a run in 24 hours" plus "the concentrated client base at SVB made it less diversified than most banks of similar size," he added, in line with Barr's observation.
California’s regulator, the Department of Financial Protection and Innovation, did not respond to FOX Business’ request for comment, while the FDIC declined to comment.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| FCNCA | FIRST CITIZENS BANCSHARES | 1,622.72 | -0.03 | -0.00% |
Early Monday, First Citizens Bank struck a deal to absorb SVB’s assets, sending the stock up 53%.
"As of March 10, 2023, Silicon Valley Bridge Bank, National Association, had approximately $167 billion in total assets and about $119 billion in total deposits. Today's transaction included the purchase of about $72 billion of Silicon Valley Bridge Bank, National Association's assets at a discount of $16.5 billion," the FDIC disclosed in the announcement.
On Wednesday, a second hearing devoted to SVB’s implosion will come from the House Financial Services Committee titled "The Federal Regulators' Response to Recent Bank Failures."