Silicon Valley Bank (SVB) is facing a financial crisis due to declining deposits from startups struggling for funds amid increased spending, as well as losses of $1.8 billion in the sale of U.S. treasuries and mortgage-backed securities due to rising interest rates. To maintain its balance sheet, the bank announced a $1.75 billion share sale, which led to a plunge in its shares of more than 62%, its biggest loss in 25 years. The CEO attributed the bank’s troubles to the increase in borrowing costs by the Federal Reserve over the last year and elevated inflation.

What Silicon Valley Bank's Depositors Need to Know and Do?
What SVB Depositors Need to Know and Do

As a crucial lender for early-stage businesses and the banking partner for nearly half of U.S. venture-backed technology and healthcare companies that listed on stock markets in 2022, the SVB turmoil raised investors’ concerns about broader risks in the sector. Reports that venture funds were telling companies to back away from the bank led to an 18% decline in SVB’s stock in one day, and potential rescues may be under consideration.

Now the The Federal Deposit Insurance Corporation (FDIC) has created the Deposit Insurance National Bank of Santa Clara (DINB) to protect insured depositors of Silicon Valley Bank in Santa Clara, California. The bank was closed by the California Department of Financial Protection and Innovation and the FDIC was appointed as receiver. The situation has raised concerns about the stability of the U.S. financial system.

What after Bank is closed

When a bank is closed by the regulatory authority and the FDIC is appointed as the receiver, the insured deposits are protected by the FDIC. The FDIC creates a Deposit Insurance National Bank (DINB) to hold the insured deposits and ensure that customers have continued access to their insured funds. The FDIC transfers all insured deposits to the DINB, and insured depositors have full access to their funds no later than the next business day.

Uninsured depositors may receive a portion of their uninsured funds as an advance dividend from the FDIC within the next week, and the remaining amount of uninsured funds will be covered by a receivership certificate. As the FDIC sells the assets of the failed bank, future dividend payments may be made to uninsured depositors.

The main office and all branches of the failed bank will reopen under the DINB’s management, and banking activities will resume, including online banking and other services. The FDIC as the receiver will retain all the assets of the failed bank for later disposition. Loan customers should continue to make their payments as usual.

Overall, the appointment of the FDIC as receiver of a bank provides protection for insured depositors and ensures that they have continued access to their funds.

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When the FDIC issues a closure order for a bank, insured depositors of the failed bank will be protected. The FDIC immediately transfers all insured deposits of the failed bank to a healthy bank.

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What will be the Fate of Money of SVB Depositors

When a bank is closed by regulatory authorities and the FDIC is appointed as the receiver, depositors may have concerns about the safety of their money. However, depositors of Silicon Valley Bank (SVB) need not worry as their insured deposits are protected by the FDIC.

Insured deposits refer to deposits that are covered by the FDIC insurance. As of March 10, 2023, the standard maximum insurance amount for deposit insurance is $250,000 per depositor, per insured bank, for each account ownership category. This means that if a depositor has multiple accounts in different ownership categories, each account will be separately insured up to the $250,000 limit.

When the FDIC is appointed as the receiver of a failed bank, it creates a Deposit Insurance National Bank (DINB) to hold the insured deposits and ensure that customers have continued access to their insured funds. In the case of SVB, the DINB is the Deposit Insurance National Bank of Santa Clara. The FDIC immediately transfers all insured deposits of the failed bank to a healthy bank, and all insured depositors will have full access to their insured deposits no later than the next business day, which is Monday, March 13, 2023, in the case of SVB.

Uninsured depositors may receive a portion of their uninsured funds as an advance dividend from the FDIC within the next week, and the remaining amount of uninsured funds will be covered by a receivership certificate. The FDIC will sell the assets of the failed bank, and future dividend payments may be made to uninsured depositors as a result.

The main office and all branches of the failed bank will reopen under the DINB’s management, and banking activities will resume, including online banking and other services. Loan customers should continue to make their payments as usual.

SVB depositors should not panic and should follow the instructions provided by the FDIC. They should contact the FDIC toll-free at 1-866-799-0959 if they have any questions or concerns. They should also ensure that their deposits are within the FDIC insurance limits to ensure that they are fully protected. Depositors with accounts in excess of $250,000 should contact the FDIC for more information. It is important for depositors to understand that the FDIC is there to protect their deposits and to ensure that they have continued access to their insured funds.

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What Depositors Can Do

If you are a depositor at Silicon Valley Bank, here are some steps you can take in response to the crisis:

Monitor your account activity:

Keep an eye on your account activity and balances to ensure that everything is accurate and up-to-date. If you notice any unusual activity, report it to the bank immediately.

Consider alternative banking options

If you are uncomfortable with the uncertainty surrounding Silicon Valley Bank’s financial stability, it may be time to consider alternative banking options. Some alternative banking options for startups include First Republic Bank, City National Bank, and East West Bank.

These banks offer similar services to Silicon Valley Bank, including specialized banking services for startups, venture capital, and private equity firms. They may also offer additional services, such as merchant services, foreign exchange, and treasury management.

It’s important to do your research and evaluate the different banking options available to you before making a decision. Look into the fees, interest rates, and account features offered by each bank to determine which one best suits your needs.

Keep an eye on SVB’s financial health

While it’s important to consider alternative banking options, it’s also important to keep an eye on SVB’s financial health. The bank’s financial stability can have a ripple effect on the startup ecosystem, so it’s important to stay informed.

Keep track of any updates or news regarding SVB’s financial situation, such as any changes in leadership, partnerships, or regulatory actions. You can also monitor the bank’s financial performance by reviewing its financial statements and earnings reports.

Seek professional advice

If you’re uncertain about what steps to take in light of the SVB financial crisis, it may be helpful to seek professional advice. Consult with a financial advisor or accountant who can provide guidance on how to navigate the current situation.

They can help you evaluate your options, develop a contingency plan, and provide guidance on how to mitigate any potential risks. They can also help you monitor SVB’s financial health and keep you informed of any developments that may impact your business.

In conclusion, the SVB financial crisis has created a great deal of uncertainty for depositors and startups alike. While the situation is still evolving, there are steps you can take to mitigate any potential risks and protect your business. By monitoring SVB’s financial health, considering alternative banking options, and seeking professional advice, you can navigate this challenging time with greater confidence and peace of mind. The appointment of the FDIC as receiver of a bank provides protection for insured depositors and ensures that they have continued access to their funds. SVB depositors should remain calm and follow the instructions provided by the FDIC to ensure the safety of their money.

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