Making Sense of the Silicon Valley and Signature Bank Failures
By Steve Cocheo, Senior Executive Editor at The Financial Brand
The fallout from the failure of Silicon Valley Bank is still a huge question mark that will take months to play out.

But the potential ripple effects started even before regulators stepped in Friday morning, California time, to close the $209 billion-asset bank that had been the primary financial engine for technology startups in this country.

A deposit run had taken on such momentum that they could not even wait until the end of the day, as typically happens with a bank failure.

It took less than 48 hours for the nation’s 16th-largest bank by assets to be toppled in what is the largest bank failure since Washington Mutual, then $307 billion in assets, was closed in 2008.

The ripples already had turned into a tsunami by Sunday evening, as New York regulators closed the $110 billion-asset Signature Bank. Signature, the 29th-largest bank in the country, had been one of the main banks serving companies in the crypto sector. It was among a group of regionals — including First Republic in San Francisco, Pacific Western in Los Angeles and Western Alliance in Phoenix — that came under grave pressure as the Silicon Valley Bank panic spread.

To quell the threat of a contagion, federal banking regulators — the Federal Reserve, the Federal Deposit Insurance Corp., and the U.S. Treasury Department — jointly made two major announcements Sunday evening.

In one announcement, they said all deposits of the two failed banks would be fully covered at no expense to taxpayers.

They also announced an emergency program that aims to give all banks and credit unions nationwide the ability to cover all deposits on demand, should there be a need. The new “Bank Term Funding Program” will provide one-year loans to banks that pledge collateral such as mortgage-backed securities and Treasury bonds.

Unrealized losses on such assets — the total across the banking industry was $620 billion as of Dec. 31, according to the FDIC — is prompting some of the concern about more turmoil.
Part of what set off the trouble at Silicon Valley Bank was that it sold $21 billion of bonds at a $1.8 billion loss. Many of the tech companies it served have been burning through cash and drawing down their deposits. To cover those withdrawals, the bank had to sell off some of the bonds it had invested in.

Its announcement about that loss had taken the market by surprise just two days earlier, especially given the unfortunate timing. Silvergate Bank, which had served companies in the crypto sector, had just announced a voluntary liquidation, after a run on its deposits left it flailing.

Though Silicon Valley Bank also announced plans to raise capital, it never got the chance.