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THE CONTEXT
As I noted in Friday’s newsletter, at the end of last week Silicon Valley Bank, a tech industry favorite that worked with many startups and venture capital firms, spiraled into failure, shocking the sector and leaving many tech founders, companies and investors uncertain of the status of their deposits with the bank.
My colleagues Matthew Zeitlin and Maggie Severns have been covering the developments in the SVB story and the response from regulators and political figures over the weekend.
LENSES
🏦 FDIC: The FDIC placed Silicon Valley Bank into a receivership on Friday, and by Sunday night, the FDIC, the Federal Reserve and the Treasury Department announced that all of the bank’s depositors would have “full access to their funds today,” Matt reports. What was out of the ordinary in this situation is that uninsured depositors – meaning those with more than the $250,000 amount of FDIC-insured deposits — would also get all of their funds. See why the FDIC’s decision isn’t a typical bailout – and isn’t a typical bank resolution, either.
🏛 Bank regulations: Following the 2008 Great Financial Crisis, financial regulators enacted various regulations and rules to address systemic risks to the broader financial system. These regulations had “two broad goals,” Matt writes: “making the system as a whole more resilient and limiting regulators’ ability to bail out individual institutions.” Notably, however, medium-sized institutions like Silicon Valley Bank were later able to operate without some of these new banking regulations on account of their size and operations. See how post-2008 reforms did and didn’t prepare us for SVB’s collapse.
📈 Federal Reserve: “Over the last year, the Federal Reserve has increased interest rates at its fastest pace in recent history, deliberately throwing sand in the gears of the financial system in order to bring down inflation,” Matt writes. “But in the process, the Fed inadvertently blew a hole in the finances of Silicon Valley Bank and many of its peers.” Learn how the Fed’s interest rate hikes endangered the banking sector, leading to SVB’s collapse.
💸 Tech: The bank’s sudden collapse on Friday shocked the tech industry. As Khaya Himmelman and Matt reported on Friday, SVB was “an unusual bank in its focus on startups in the tech sector,” and according to the bank, it counted “around half of all U.S. venture-backed startups as clients.” SVB “would work hand in glove with technology companies and venture capital firms, frequently lending companies money after they had raised capital” from VCs. Read more about SVB’s role as the tech sector’s favorite bank.
🐘 Politics: The bank episode has “has put an ideological rift between establishment Republicans and the populist right on full display,” Policy Reporter Maggie Severns writes. While many Republicans in Congress and Washington have viewed that “regulators did the right thing by stepping in” to prevent negative repercussions for the wider economy, others have accused regulators of “corporate cronyism” or a “bailout” of the bank using taxpayer money. See how SVB’s collapse reveals the power of Trump-style populism.
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