What happens to savings and deposits of more than $250,000 if Silicon Valley Bank collapses?

The Biden administration moved quickly over the weekend to bolster confidence in the banking sector after the collapse of Silicon Valley Bank, the 16th largest bank in the United States. Treasury Secretary Janet Yellen announced on Sunday that the financial institution’s customers as of Monday 13 March would “have access to all of their money.” None of the losses incurred by the resolution of Silicon Valley Bank “will be borne by the taxpayer.”

The bank, which largely serves start-ups and venture capitalists, is the biggest failure of a federally insured bank since Washington Mutual in 2008, and the second-largest in history. The move by the government to make depositors at the niche bank whole was to prevent contagion and whose clientele had much larger amounts stored at the bank than the standard $250,000 of government-insured funds.

The same measure will apply to Signature Bank which has been on the brink in recent days as well, and which government regulators closed down on Sunday. However, in a joint statement from the Department of the Treasury, Federal Reserve, and FDIC “shareholders and certain unsecured debtholders will not be protected.”

Why did Silicon Valley Bank collapse?

The collapse of Silicon Valley Bank occurred with breath-taking speed for an institution that wasn’t insolvent, playing out over a matter of hours. At the end of the year, the bank had around $209 billion of total assets and $175 billion in deposits, but two financial missteps caused a run by worried clients to get a hold on deposits.

On Wednesday night, Silicon Valley Bank announced the sale of $21 billion in bonds at a loss of $1.8 billion in addition to $2.25 billion in convertible preferred stock. The move was to reassure investors, the bonds were underperforming in a climate of high interest rates, however, it backfired spectacularly. While the bond sale could be done overnight, the stock sale had to wait until the following morning. That gave investors time to question what was going on, and as well for the bank’s business-savvy clients to start withdrawing funds en masse to ensure that they could cover costs.

Silicon Valley Bank customers full deposits fully protected beyond $250,000

On Friday, banking regulators assumed control of the financial institution and convened to sort of the situation to avoid contagion and secondary effects from the failed bank. The emergency measures will fully protect all depositors at Silicon Valley Bank and give them access to all of their money beyond the $250,000 that is normally guaranteed by the FDIC.

Also “a similar systemic risk exception” decision was taken for Signature Bank of New York which had been teetering in recent days. Banking regulators closed the bank on Sunday.