U.S. government officials have announced that all depositors with Silicon Valley Bank (SVB) will have access to all their money as of Monday. This is a change from the FDIC’s announcement on Friday that only insured depositors would have full access, while uninsured depositors would receive an advance dividend.
Silicon Valley Bank’s sudden collapse had posed a serious existential crisis for numerous cybersecurity startups. As of January 1, customer deposits worth about $157 billion sat in accounts exceeding the FDIC insurance limit of $250,000.
Only $4.8 billion was fully insured by the FDIC. Startups that paid their employees twice-monthly and had most of their banking at SVB would have faced catastrophe when they needed to make payroll, but the government’s action has averted this.
The joint announcement by the Department of the Treasury, Federal Reserve, and FDIC has avoided a doomsday scenario for startups and the venture capitalists that back them, which could have sent the entire global economy into a deep tailspin.
The decision to make uninsured SVB depositors whole might require a special assessment on banks to recover losses to the deposit insurance fund. The government has emphasized that taxpayers will pay none of the cost associated with making SVB depositors whole. Silicon Valley Bank’s shareholders and certain unsecured debtholders also won’t be protected.
The FDIC is looking for an acquirer that has the financial wherewithal and management expertise to handle SVB’s assets and customers, but not one that is so large as to be considered “too big to fail” like JPMorgan Chase or Bank of America.
The ideal bidder would likely be a regional bank. Although SVB’s depositors are now fully protected, startups planning to turn to the bank for loans or lines of credit will find themselves navigating choppy waters.
With the FDIC in charge of SVB for the foreseeable future, startups might find it tougher to access the capital needed to scale up or stay afloat amid rising inflation and interest rates.
Silicon Valley Bank had four decades of work with startups and was much more willing to extend money to early-stage firms than conventional banks, which often demanded a solid business history and profitability.
Firms that do not meet these criteria may now find it difficult to access funding. Nevertheless, the government’s decision to make all SVB depositors whole has provided relief to the startup community, and its action to prevent a cascade of other potential bank failures is seen as a necessary step.
