By Alan R. Sasserath, CPA, MS
Over the last several days, we, like many of you, have watched with bated breath as the events of the Silicon Valley Bank (”SVB”) collapse unfolded. As of the close of business on Friday, many SVB customers with balances in excess of the $250,000 insured FDIC limit were unsure if those excess balances were gone for good. It wasn’t until late Sunday that the Treasury, Federal Reserve, and FDIC issued a joint statement  (“Joint Statement”) stating that all depositors would be fully protected. Whew!
Additionally, New York regulators closed Signature Bank (“Signature”) on Sunday in similar fashion to the way that SVB was closed. The Joint Statement also stated that Signature depositors would be made whole.
The Joint Statement went on to say that it will make available additional funding to eligible depository institutions to help assure banks will have the ability to meet the needs of their depositors. It is important to note that the protection applies to depositors, not shareholders nor certain unsecured debtholders of the bank.
What happened at SVB?
To oversimplify what happened, SVB took cash received from depositors over the years and invested it in long-term notes. As interest rates rose over the last year, the value of the notes declined. The depositors began taking their cash out, requiring SVB to sell the long-term notes at a loss. This past Wednesday, SVB announced a plan to raise capital to cover the losses. The announcement spooked depositors and the run on the bank (depositors taking their funds out of SVB) took over on Thursday. The stock never opened for trading on Friday and SVB was taken over by the government Friday afternoon.
The notes issue with SVB caused Wall Street to look at other banks, and the trading on a few other bank stocks, including Signature, was halted on Friday.
What does this mean for you?
Signature and SVB aren’t the only two banks with investments on their balance sheets that have declined in value. Also, just because a bank has investments that have declined in value doesn’t mean it will have the same fate as SVB and Signature.
We work with clients that have in excess of $250,000 at SVB and to say this experience has been unnerving for those involved is an understatement. The ripple effect of the Treasury, Federal Reserve and FDIC not stepping in to back deposits would have been a huge blow not only to SVB and Signature depositors but also to the broader economy.
With the Joint Statement indicating that the Federal government will continue to back depositor funds, the immediate pressure to examine your banking relationship is off but still should be on the to-do list especially if you have money above the $250,000 FDIC insurance limit. While we expect the Federal government to continue to back banking deposits, many unsuspecting depositors had sleepless nights this weekend.
For any business owner, the banking relationship is especially tricky since it is a personal relationship in a regulated industry. The two are generally mutually exclusive. Also, the current state of the banking world is about as far away from the Bailey Building and Loan from It’s a Wonderful Life as we can get and you need to be honest with yourself about your relationship with your bank and banker, especially now.
Over time, I am sure facts will come out about the fate of SVB that we’ll understand and others that will turn our stomachs. The regulators will deal with those issues. Whether or not you bank with SVB or Signature, we all just got a pass to one extent or another because the Federal government backed all deposits.
The fate of SVB reminds me that we all have difficult decisions to make. If you defer the difficult decision, then it only gets more difficult over time and doesn’t go away. Perhaps if the investment team at SVB made the difficult decision to take some losses back in early 2022, rather than let them grow to where they were last week, SVB wouldn’t have been taken over by the Federal government. All we can do is guess at this point.
With all that being said, we will all keep moving forward and keep making the difficult decisions. Let us know if we can help in any way by calling 631-368-3110.
 Joint Statement by Treasury, Federal Reserve, and FDIC https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm