March 13, 2023

Venture, crypto-based banks fail

Federal ReserveFriday, the California Department of Financial Protection and Innovation placed Silicon Valley Bank (SVB) into receivership, marking the second largest bank failure since the financial crisis in 2008. The $209 billion asset bank was taken over by the California regulator, citing "inadequate liquidity and insolvency.” Late Sunday afternoon, the $110 billion New York-based Signature Bank was closed by the New York Department of Financial Institutions.

SVB was heavily concentrated in startup companies and venture capital firms, while Signature Bank was heavily focused on banking crypto companies. These unique business models are not representative of most banks and credit unions in the U.S. financial ecosystem.

However, regulators, including the Federal Deposit Insurance Corporation (FDIC), Federal Reserve, and Treasury Department, spent the weekend working to make sure the problems at SVB and Signature would not spread. SVB was particularly problematic because while the FDIC insures all deposits up to $250,000, the unique nature of SVB’s depositors left many startup companies who had business accounts well above $250,000 unsure of how they would be able to access their funds to operate their business and make payroll.

Late Sunday, the FDIC, Federal Reserve, and Treasury announced that today depositors of both banks will have access to all of their deposits. Treasury Secretary Janet Yellen signed off on a “systemic exception” for both institutions, allowing the FDIC to pay out all deposits. Any loss to taxpayers from paying out such deposits will be recouped by a special assessment on all banks. In addition, the Federal Reserve “will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.”  The Federal Reserve facility is available to both banks and credit unions.  The term sheet can be found here. 

The bank failures also led policymakers to call for a review of bank capital and liquidity regulations. NAFCU’s advocacy team will remain in touch with lawmakers and regulators as they review the failures and ensure the U.S. financial system remains strong.