Silicon Valley Bank, a major player in the technology and life science industries, collapsed last week after experiencing a run on the bank on Thursday, and the Biden Administration has announced it will protect all depositors, even those with accounts exceeding the insured amount of $250,000. While local elected officials welcomed the news, they are also calling for accountability, attributing the bank’s failure to poor management and risky lending practices.
“Going forward, we must hold bank mismanagement accountable and investigate whether there was any shorting or manipulation of markets,” Rep. Eric Swalwell (D-District 14) said in a statement.
The 16th-largest bank in the U.S., Silicon Valley Bank’s collapse began on Wednesday, when the bank disclosed it sold its bonds at a loss of $1.8 billion in order to pay depositors and announced its intention to try to raise more capital. This led to a rush of withdrawals by investors and depositors, resulting in the bank having a negative cash balance of $958 million by the end of Thursday. The state Department of Financial Protection and Innovation shut the bank down the following day, and the Federal Deposit Insurance Corporation took control of its assets.
The FDIC initially announced it would allow insured depositors to access up to $250,000, but elected officials, including State Sen. Aisha Wahab, Swalwell and Rep. Ro Khanna (D-District 17), expressed concerns about protecting accounts exceeding the insured amount, which they say are held by small- and medium-sized businesses that rely on the bank to pay their workers.
President Joe Biden said during a Monday press conference that the Treasury and bank regulators have taken steps to ensure all customers, even those with accounts exceeding $250,000, will have access to their funds. He added that “no losses will be borne by the taxpayers,” and the money to pay depositors will come from the fees that banks pay into the Deposit Insurance Fund.
Khanna, who has refused to answer multiple requests for comment, posted on Twitter a few days ago that the Economic Growth, Regulatory Relief and Consumer Protection Act, signed into law in 2018, allowed regional banks like Silicon Valley Bank “to take irresponsible levels of risk.” The act amended the Dodd-Frank Wall Street Reform and Consumer Protection Act to raise the threshold for banks to be considered “systemically important,” or “too big to fail,” from those with $50 billion in assets to those with more than $250 billion in assets. Silicon Valley Bank had about $209 billion in assets and about $175.4 billion in deposits at the end of last year, according to the FDIC.
Swalwell also said that the reclassification “inoculated Silicon Valley Bank from stress tests and regulations that would have prevented this crisis.”
“This is a lesson: the weakening of bank regulations for small and medium sized banks allowed this mismanagement to go unchecked,” Swalwell said. “We cannot trust the people and institutions who oversee so many Americans’ paychecks to go unregulated. I look forward to working with my colleagues to strengthen Dodd-Frank Act protections in the banking industry.”
None of the officials provided specific details regarding the mismanagement and risky lending practices at the bank, though securities filings showing the bank’s top officials sold millions of dollars of their own shares in the weeks leading up to the bank’s collapse.
Biden said his administration intends to fire the bank’s management and get a full picture of why the bank collapsed, but also acknowledged the Trump-era rollback of Dodd-Frank may have played a central role.
“I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure will happen again,” Biden said.
Silicon Valley Bank did not respond to a request for comment.