Silicon Valley Bank, a midsized institution that finished last year with nearly $200 billion in deposits, shuttered Friday and reopened on Monday under the direction of federal regulators.The blame game started almost immediately in Washington and on Wall Street as fears of a broader fallout mounted.
SVB arrived at that crossroads recently because the economic downturn caused by inflation, interest rates, and a lack of new investment in the tech industry meant the bank’s clients started pulling out their money at a faster pace than usual just to keep their businesses afloat. “Joe Biden is pretending this isn't a bailout. It is,” Nikki Haley, the former South Carolina governor running for the GOP presidential nomination, said on Monday. “Now depositors at healthy banks are forced to subsidize Silicon Valley Bank's mismanagement.”
Critics of the Biden administration’s approach in this case have questioned whether future failed banks will expect the same treatment from federal regulators. Who will foot the bill for the loan program? Federal officials said the Treasury Department will make $25 billion available as a “backstop” for the loans, which the Biden administration hopes not to use.
The bank also heavily promoted its diversity commitments in leadership, which one Wall Street Journal columnist suggested was a possible factor in why management failed so spectacularly. Signature Bank in New York City also closed its doors on Sunday after the SVB collapse, facing a similar run on deposits from customers who panicked after seeing what happened on the opposite coast.
The cost of compliance, he argued, was disproportionately higher for regional banks than for global firms with legions more staff. Larger banks are also required to keep more cash on hand than smaller ones since the rules were rolled back.In the end, SVB was done in by a bank run, which is a product of human behavior and emotions. Some analysts have speculated that the uniquely plugged-in nature of SVB’s clientele, coming mostly from tech and venture capitalist firms that closely track the financial industry, contributed to the speed of the run on deposits last week.
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