COUNSELOR’S CORNER Robert (Bob) Kardell, Baird Holm, LLP Silicon Valley Bank and the Federal Government Response Silicon Valley Bank On Friday, March 10, 2023, the federal government took over the 40-year-old bank, Silicon Valley Bank (SVB), as it was in the midst of collapsing. SVB had become known as a bank for tech startups and innovation. At the time of the failure, SVB was the 16th largest bank with approximately $200 billion in assets, of which approximately 95% of the assets were uninsured.1 One of the biggest vulnerabilities of SVB was the concentrated client base. The client base was not very diversified in terms of industry, company maturity, or geography. Most clients were tech startups. In fact, SVB boasted that 44% of the companies backed by venture capitalists, which went public in 2022, were SVB clients.2 The lack of diversification in banking clients can lead to amplified stress when an undiversified banking market is stressed, and the bank then becomes much more difficult to manage in terms of risks. Several companies with high concentrations of their capital in SVB submitted regulatory filings, which specifically mentioned the failure of SVB and the possible impact on operations.3 Within two days, the federal government appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver, and the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). The FDIC then immediately transferred all insured deposits of Silicon Valley Bank to the DINB. To add to the complexity of the issues, as of March 14, 2023, the Department of Justice has announced an investigation into the bank collapse.4 Signature Bank Signature Bank (Signature) in New York City, a 24-year-old bank, was also closed by the state regulatory authorities on Sunday, March 12, 2023. Signature was heavily invested in cryptocurrency and maintained a book of assets of approximately $88 billion. Signature catered to law firms and held many very large bank accounts. It was estimated that $79 billion of Signature’s $88 billion in assets were uninsured deposits because so many of the Bank's deposit accounts were over the $250,000 insured by the FDIC. The biggest issue for Signature, however, was that $16.5 billion was in crypto assets, which have not fared well since the demise of FTX. The large amount of capital invested in the crypto assets meant that Signature was also not very diversified. The FDIC established the Signature Bridge Bank, N.A. as a successor to Signature to help depositors access their money.5 16
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