Here’s what could happen next to Silicon Valley Bank customers

A customer stands outside the closed headquarters of Silicon Valley Bank (SVB) on March 10, 2023 in Santa Clara, California.

Justin Sullivan | Getty Images

Silicon Valley Bank customers, along with investors and bankers around the world, are awaiting an announcement from U.S. regulators on what comes next after the biggest bank failure since 2008.

The Federal Deposit Insurance Corporation (FDIC) announced Friday that SVB would reopen Monday morning, under the supervision of the new Santa Clara National Deposit Insurance Bank. Once that happens, insured depositors with up to $250,000 in their accounts will be able to access their money.

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But the majority of deposits at SVB were uninsured, and it’s unclear when those customers will be able to access their money – or if they’ll get it back in full. SVB’s role as a key bank for start-ups and other venture capital-backed companies means that many companies could struggle to meet their salary and other obligations if their money is not quickly recovered.

Many investors on Wall Street and in Silicon Valley expect additional information to be announced at some point on Sunday. Here’s a look at some of the paths to take from here.

Regulator options

Treasury Secretary Janet Yellen said on Sunday a bailout of SVB was not on the table but regulators were exploring other options.

“We are concerned about depositors and are working hard to meet their needs,” Yellen said on “Face the Nation” on CBS.

“It’s really a decision for the FDIC as they decide the best course of action to resolve this business,” she added.

US Treasury Secretary Janet Yellen attends a US House Ways and Means Committee hearing on President Joe Biden’s fiscal year 2024 budget request on Capitol Hill in Washington, US, on March 10, 2023.

Evelyn Hockstein | Reuters

One potential option could be to use the FDIC’s systemic risk exception tool to support uninsured deposits at SVB. Under the Dodd-Frank Act, this decision would have to be made in concert with the Secretary of the Treasury and the Federal Reserve.

Additionally, Bloomberg News reported on Saturday that regulators are considering creating a special investment vehicle that would back uninsured deposits at other banks, which could prevent bank runs from spreading in the coming week.

Another possibility is that another bank steps in to buy some or all of SVB. This happened during the financial crisis, especially when JPMorgan Chase absorbed Washington Mutual in 2008. Bloomberg News reported Sunday that the FDIC is holding an auction process for SVB.

Sen. Mark Warner (D-Va.), a member of the Senate Banking, Housing and Human Affairs Committee, told ABC’s “This Week” that “the best outcome is an acquisition of SVB.”

Historically, such acquisitions have often taken place on weekends. Once the bank opens on Monday, more depositors could withdraw their money, making a sale more difficult.

FDIC Asset Sales

If there is no buyer for SVB or a new safety net created by regulators, the FDIC will sell SVB’s assets to raise funds that would be used to reimburse uninsured depositors.

SVB had tens of billions of dollars in agency mortgage-backed securities. These assets are very liquid and could theoretically be sold quickly with little loss. Regulatory reforms since the 2008 financial crisis have also made mortgage-backed securities much safer than those that contributed to financial stability issues at the time.

The FDIC said Friday that uninsured depositors would obtain a certificate of receivership and receive an early dividend payment within the week.

Bloomberg News reported late Saturday that between 30% and 50% of uninsured deposits could be returned as early as Monday.

Other assets held by SVB include loans that are less liquid and may be more difficult to sell. This process could take several weeks or longer and end with uninsured deposits being restored to less than 100%.

Some SVB customers, such as businesses, may be able to sell their deposit claims to other financial companies at a discount to raise funds faster than the FDIC process.

Impacts on markets, other banks

Investors have warned that the failure of government regulators to announce a new plan to restore SVB deposits could lead to cascading problems at other small and medium banks as well as in financial markets.

One concerning outcome would be customers withdrawing large amounts of money from other banks and transferring it to the largest US banks that the government has defined as systemically important. Customers withdrew more than $42 billion from SVB on Thursday, and similar moves at other banks could put a strain on those companies even if they have stronger balance sheets.

This fear may first appear in the financial markets. The US futures market opens at 6 p.m. ET, and many Asian markets open around this time.

SVB’s failure has already had an impact on wider markets. The S&P 500 lost 4.55% last week, while regional bank stocks fell 16% for their worst week since March 2020.

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