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Silicon Valley Bank Becomes First FDIC-Insured Institution to Fail in 2023

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On Friday, March 10, 2023, the Federal Deposit Insurance Corp (FDIC) closed down Silicon Valley Bank, the California-based subsidiary of SVB Financial Group. This marks the first FDIC-insured institution to fail in 2023, and the largest bank failure since the 2008 financial crisis. The closure was necessary to protect insured depositors, and all of Silicon Valley Bank’s insured deposits were immediately transferred to the Deposit Insurance National Bank of Santa Clara (DINB).

Silicon Valley Bank’s financial struggles stemmed from borrowing short and lending long amid rising interest rates, according to former U.S. Treasury Secretary Lawrence Summers. The bank’s deposit base began to crumble due to difficulties in the venture capital industry and startup world, causing alarm among customers.As of December 31, 2022, Silicon Valley Bank had about $209.0B in total assets and $175.4B in total deposits. The amount of insured deposits, however, is yet to be determined. The FDIC will pay uninsured depositors an advance dividend within the next week, and they’ll receive a receivership certificate for the remaining amount of their uninsured funds. Future dividend payments will be made to uninsured depositors as the FDIC sells the bank’s assets.

Despite concerns that the SVB Financial (SIVB) situation could spread to other banks, DanilSerada, a contributor to Seeking Alpha, does not see it as a black swan event that will damage the U.S.

banking system. Similarly, Summers does not see the situation as a source of systemic risk, as long as depositors are paid back in full.In midday trading, the KBW Bank Index (BKX) dropped 2%, with SVB Financial (SIVB) declining 63% and now halted.

Other major financial decliners include Western Alliance Bancorporation (WAL) (-49%), PacWest Bancorp (PACW) (-33%), First Republic Bank (FRC) (-24%), and Signature Bank (SBNY) (-22%).SVB Financial (SIVB) also operates SVB Wealth LLC and SVB Investment Services Inc, but investment products offered by those subsidiaries are not FDIC-insured, not bank-guaranteed, and may lose value, according to the company’s website.This news highlights the importance of depositors keeping an eye on the financial health of their banks and choosing FDIC-insured institutions to safeguard their deposits.

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