Washington – Tomorrow, Monday, the eyes of the American and international banking sector will turn to Silicon Valley Bank and its 17 branches spread in California and Massachusetts, at a time when the Federal Deposit Insurance Corporation (FDIC) called on depositors to withdraw their financial deposits.
The federal government guarantees through that institution deposits of no more than $250,000 only. As a bank that provides services primarily to companies, approximately 97% of the bank’s deposits amounting to $ 200 billion are uninsured because their value is more than $ 250 thousand, and they belong to companies mainly.
Some experts believed that the failure of the bank highlights the large losses experienced by the entire banking system as a result of the rise in interest rates, and the impact of this on investment in bonds.
The bank crisis prompted President Joe Biden to hold a phone call with California Governor Gavin Newsom on Saturday regarding efforts to address the crisis situation.
Unjustified failure
The bank surprised investors last Wednesday by announcing that it needed to raise $2.25 billion to shore up its balance sheet, and that following selling all its available bonds it lost $1.8 billion.
The assurances of the bank’s executives were not enough to stop the rush of depositors to withdraw deposits worth $42 billion by the end of last Thursday, and the bank’s share lost more than 60% of its value.
The California Department of Financial Protection and Innovation said on Friday that it would close the bank to protect deposits, and named the Federal Deposit Insurance Corporation as its receiver.
“The main branch of the bank and all 17 branches of the bank will reopen on Monday, March 13, 2023,” the Federal Deposit Insurance Corporation said in a press release. According to the statement, all insured deposits will be available on Monday.
Some have called for preparations for a hard economic downturn as more parts of the financial system begin to collapse.
Invitation to take over the bank
Many voices from within the tech sector and banking have increasingly called on the federal government to push another bank to take over Silicon Valley to protect uninsured deposits.
They expressed fears that failure to manage the crisis in protecting deposits of more than $250,000 may result in a loss of confidence in other medium-sized banks.
And some big names in the technology and banking sectors called on the federal government to intervene, and to push another bank to take over the management of the assets and liabilities of Silicon Valley Bank, especially since the vast majority of its depositors are emerging companies.
Many are worried that they will not be able to pay salaries this month, which in turn might lead to a wave of failures and layoffs in the technology industry.
Investors are concerned that these failures may reduce confidence in the banking sector, especially medium-sized banks with deposits of less than $250 billion.
These banks are not considered large enough to risk bankruptcy, nor do they have to abide by the safety valve measures that were passed in the followingmath of the 2008 financial crisis.
Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.
— David Sacks (@DavidSacks) March 10, 2023
Investor David Sachs called on the federal government to push another bank to buy the assets of Silicon Valley Bank, and Sachs – who previously managed a number of technology companies – tweeted, “Where is (US Federal Reserve Chairman Jerome) Powell? Where is (Treasury Secretary Janet) Yellen? Stop this.” “The crisis is now. They have to announce that all deposits will be safe, and one of the big four banks must take over Silicon Valley Bank before they start operating on Monday morning, or there will be contagion and the crisis will spread.”
Investor Bill Ackman made a similar argument in a lengthy tweet, writing, “The government has less than 48 hours to fix an irreversible error soon.”
The government is the solution
The opinions of the Washington political community were divided on the need for the federal government to intervene or not to prevent the bank’s collapse.
Republican Senator and former presidential candidate Mitt Romney tweeted, calling for the intervention of the federal government to save the bank, and said, “The shareholders and executives of Silicon Valley Bank lose everything, however, depositors in good faith must recover their deposits in order to pay the salaries of their workers, and pay the cost of their requests, and prevent the spread of infection.”
Silicon Valley Bank’s shareholders and executives lose it all, as they should. Depositors in good faith, however, should recover and have access to their deposits in order to meet their payrolls, pay their suppliers, and to prevent contagion.
— Mitt Romney (@MittRomney) March 11, 2023
By contrast, Rep. Matt Gaetz of Florida has opposed any government bailout, saying, “If there is an effort to use taxpayer money to bail out Silicon Valley, the American people can count on the fact that I will be there leading the fight once morest it.”
Bonuses hours before the closing of Silicon Valley Bank
Silicon Valley bank employees received their annual bonuses last Friday just hours before the feds took over the bank, and the bonuses were reportedly for work done in 2022 and were in the process days before the bank collapsed.
Historically, bank employees receive their annual bonuses on the second Friday of March, which coincides with the last day of the bank’s work.
The annual bonus ranged from $12,000 for junior employees to $140,000 for executives.
It is noteworthy that Silicon Valley Bank has 8,528 employees, and they earned an average income that is among the highest in the American financial sector last year, amounting to $ 250,000.
If there is an effort to use taxpayer money to bail out Silicon Valley Bank, the American people can count on the fact that I will be there leading the fight once morest it. pic.twitter.com/pttSd7iPRQ
— Rep. Matt Gaetz (@RepMattGaetz) March 10, 2023
