Silicon Valley Bank and Signature Bank: No Need to Panic

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Step one: take a deep, slow breath.

Step two: make sure your bank balances are within the FDIC insurance limits.

Step three: if you have questions, call us.

Step four: read on, if you want to know more about what happened.

Then get on with your life.

There’s been a ton of news and analysis about this past weekend’s bank failures, but some of the most sensible commentary we’ve seen has come from our friends at Concierge CPAs. They’re business, accounting, and tax advisers with offices in Ohio and Texas (and are also Practical Financial Planning’s CPAs). The following is based on their commentary of Monday, March 13, 2023 (used with their kind permission).

Silicon Valley Bank (SVB) was the go-to lender for many California-based tech companies. This past Friday, March 10th, SVB met a swift end after “facing a sudden bank run and capital crisis; it collapsed Friday morning and was taken over by federal regulators." (CNN, "How does a bank collapse in 48 hours? A timeline of the SVB fall.") Signature Bank followed over the weekend.

How the Government Intervened

In a joint statement, the US Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) stated that FDIC will guarantee all deposits at SVB and Signature Bank, not limited to the normal $250,000 per depositor per bank. “Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law,” meaning that taxpayers will not foot the bill for the loss.

You may have heard of losses the government is not preventing. Those are the losses to investors in the banks’ stock and bonds, not the banks’ depositors.

Why There’s No Need to Panic

Most banks in the US banking system have much more diversified portfolios than SVB, which invested and banked heavily with tech and venture capital firms.
Leading financial experts see this bank collapse as regional- and industry-specific.
SVB had assets of about $200 billion, which made up about 0.91% of the US banking industry’s assets on the whole.
FDIC insures traditional bank deposits up to a limit of $250,000 per depositor per bank. Most of the time, when FDIC acts, they take over the bank on Friday, and it re-open with insured deposits available on Monday. That’s exactly what happened with Silicon Valley Bank, except that deposits even beyond the FDIC limits were immediately available. While we shouldn’t count on FDIC agreeing to insure more than their limits again, most of us can adequately protect our cash by making sure we don’t exceed the insured limit at any one bank.

Media analysis and comment

As you read these, remember, this story has moved quite quickly. There are likely to be important updates after this article is published.

PBS Newshour, “Analysis: What Silicon Valley Bank collapse means for the U.S. financial system.” March 13, 2023:

At the end of 2022, SVB was the 16th-largest bank in the United States with $209 billion in assets.

That sounds like a lot – and it is – but that’s just 0.91% of all banking assets in the U.S. There is little risk that SVB’s failure will spill over to other banks.

Having said that, SVB’s collapse does highlight the risk that many banks have in their investment portfolios. If interest rates continue to rise, and the Federal Reserve has indicated that they will, the value of the investment portfolios of banks across the U.S. will continue to go down.

While these losses are just on paper – meaning they’re not realized until the assets are sold – they still can increase a bank’s overall risk. How much the risk will go up will vary from bank to bank.

The good news is that most banks currently have enough capital to absorb these losses – however large – in part because of efforts taken by the Fed after the 2008 financial crisis to ensure financial firms can weather any storm.

So rest easy for now, the banking system is sound.

USA Today, “What Silicon Valley Bank collapse means – and why it's not 2008 again.” March 11, 2023:

Other banks are far more diversified across multiple industries, customer bases and geographies. The most recent round of "stress tests" by the Federal Reserve of the largest banks and financial institutions showed that all of them would survive a deep recession and a significant drop in unemployment.

Forbes, “FDIC Shutdown Of SVB Sparks Banking Crisis Fears, But For Now, Bank’s Collapse Is Just A Cautionary Tale.” March 13, 2023:

Most analysts shared a similar perspective, with CFRA Research maintaining its “neutral outlook” on diversified U.S. banks.

We do not see the Silvergate (SI) and SVB Group (SIVB) meltdown as a fundamental or liquidity risk for the large banks on unrealized long-term bond maturity losses (U.S. Treasuries and mortgage-backed securities),” said Kenneth Leon, research director at CFRA, in an email on March 10. “Large bank deposits have a diversified customer base (especially low-cost consumer deposits) … SIVB had concentration risk to deposits in the technology and venture capital industry. …

Unless you were a depositor or investor at SVB, this bank failure is unlikely to impact you.

Washington Post, “Is this a bailout and 6 other questions about the SVB collapse” (paywall), March 13, 2023

President Biden also said Monday that he would push Congress and banking regulators “to strengthen the rules for banks to make it less likely this kind of bank failure would happen again and to protect American jobs and small businesses.” On a call with reporters, a Treasury official emphasized that the federal intervention would not bring SVB or Signature back to life, as the enormously controversial bank bailouts during the 2008 financial crisis had done for banks that were close to failing. Their executives would not retain their jobs. These new safeguards were aimed at protecting people and businesses who had made a reasonable decision to put their money into an accredited and regulated bank — not investors who bought risky securities. Crucially, the Treasury official also emphasized, the money used to reimburse the depositors would come from a fund paid into by U.S. banks. Treasury Secretary Janet L. Yellen and Biden both released statements Sunday night underscoring that taxpayers will not pay to rescue depositors because the bank fund would cover any costs.

Another decade, another crisis

News like this comes up from time to time, and there always seems to be some new, unthought-of twist in the story. That new-ness is part of what makes it a crisis.

But these crises always pass. And protecting yourself from them is simple: a well-diversified investment portfolio, sensible measures like making sure you don’t put more into any one bank than is covered by FDIC, and a financial plan with a holistic view that focuses on more than just your investments.

The news may be different this time, but the financially healthy approach isn’t built on news. It’s built on stronger, more enduring foundations. As we’ve said before, and as we’ll no doubt say again, there’s no need to panic.

-Ken Robinson

EDIT: NPR's Planet Money did a great podcast on SVB's fall and the government's response.