The Federal Reserve announced on Monday that it would investigate the tech-focused Silicon Valley Bank’s (SVB) demise, including any regulatory or supervisory failings. This comes a day after regulators closed crypto-focused Signature Bank, marking the second U.S. bank to fail days apart.
The review will be overseen by Michael Barr, the central bank’s vice chair for supervision, and the findings are expected to be made public by May 1.
“We need to have humility and conduct a careful and thorough review of how we supervised and regulated this firm and what we should learn from this experience,” Barr said in a statement.
According to Chair Jerome Powell, the events surrounding SVB’s collapse demand a “thorough, transparent, and swift review” by the Federal Reserve. The bank’s closure was the second-largest bank failure in U.S. history, following the collapse of Washington Mutual during the 2008 crisis, at $209 billion.
The bank, which was founded in 1983, built its reputation on financing Silicon Valley tech startups, eventually becoming the 16th largest bank in the United States. It mostly serviced tech startups, with many devoted to climate change initiatives and some from California’s wine sector. The bank also had significant exposure to crypto startups and crypto venture capitalists.
The collapse of SVB was driven by negative sentiment, with investors and depositors attempting to withdraw $42 billion in a bank run on March 9. The next day, federal authorities intervened to force the bank’s closure, resulting in the greatest bank failure since the 2008 Great Recession.
U.S. Treasury Secretary Janet Yellen pointed to rising interest rates, which the Federal Reserve has increased to combat inflation, as the core problem for SVB. With each Fed rate increase, SVB’s significant Treasury bond holdings and mortgage-backed securities lost value. At the same time, the bank’s startup clients were increasingly drawing down funds amid a sparsity of venture capital investment.
Signature Bank, which collapsed in the wake of SVB’s fall, held more than $110 billion in assets and some of the biggest stakes among banks in the nation in the cryptocurrency industry, and was placed into receivership under the Federal Deposit Insurance Corporation (FDIC).
‘Your Deposits Are Safe’: Biden
On Monday, President Joe Biden assured Americans that “your deposits are safe” after the banks’ collapse.
Regulators have stepped in to guarantee customer deposits, both insured and uninsured, in SVB and Signature Bank, seeking to reassure the public and prevent wider bank runs in tech-exposed institutions.
According to Bloomberg News, 93 percent of SVB’s $161 billion in deposits were not covered by the Federal Reserve’s emergency lending power, the FDIC, which is funded by a levy on bank deposits.
In a joint statement with the U.S. Treasury Department and Federal Reserve, the FDIC said that it is “announcing a similar systemic risk exception for Signature Bank” to what SVB was granted.
“All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” read the joint statement from the federal regulators.
To prevent losses for taxpayers, regulators ruled out a taxpayer-backed bailout of the bank’s owners and investors, saying that the FDIC would cover the risks in SVB and Signature Bank’s portfolios by auctioning off their assets to repay depositors for their funds.
Former President Donald Trump, who is also a 2024 GOP presidential candidate, blamed the bank failures on President Joe Biden’s economic policies in a post on Truth Social.
Meanwhile, Democrats have blamed Trump for the bank failures, saying the issue was the Dodd-Frank Financial Reform Act that he signed off on in 2018 with bicameral support from many Democrats.
Melanie Sun contributed to this report.
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