U.S. Officials Weigh Protecting All Deposits At SVB

Federal authorities are seriously considering safeguarding all uninsured deposits at Silicon Valley Bank, weighing an extraordinary intervention to prevent what they fear would be a panic in the U.S. financial system, according to three people with knowledge of the matter, who spoke on the condition of anonymity to describe private deliberations, The Washington Post reported.

The plan would be among the potential policy responses if the government is able to find a buyer for the failed bank. The FDIC began an auction process for SVB on Saturday and hoped to identify a winning bidder Sunday afternoon, with final bids expected by 2 p.m. Eastern time, according to two people familiar with the matter.

Although the FDIC insures bank deposits up to $250,000, a provision in federal banking law may give them authority to protect the uninsured deposits as well as if they conclude that failing to do so would pose a systemic risk to the broader financial system, the people said. In that event, uninsured deposits could be backstopped by an insurance fund, paid into regularly by U.S. banks.

Before that happens, the systemic risk verdict must be endorsed by a two-thirds vote of the Fed’s Board of Governors and the FDIC board along with Treasury Secretary Janet Yellen. No final decision has been made, but the deliberations reflect concern over the collateral damage from SVB’s collapse and authorities’ struggle to respond amid limits on their powers implemented following the 2008 financial bailouts.

According to The Washington Post, any decision to provide unusual assistance to SVB’s depositors would likely draw opposition. As discussions continued Sunday, some experts said that problems at the bank – and others like it – did not pose a threat to the U.S. financial system.

That said, there is another problem to consider regarding Silicon Valley Bank. CNBC reported that employees of SVB received their annual bonuses Friday just hours before regulators seized the failing bank, according to people with knowledge of the payments.

The Santa Clara, California-based bank has historically paid employee bonuses on the second Friday of March, said the people, who declined to be identified speaking about the awards. The payments were for work done in 2022 and had been in process days before the bank’s collapse, the source said.

This year, bonus day happened to fall on SVB’s final day of independence. The institution, in the throes of a bank run triggered by panicked venture capital investors and startup founders, was seized by the Federal Deposit Insurance Corporation, (FDIC) around midday Friday.

On Friday, SVB CEO Greg Becker addressed workers in a two-minute video in which he said that he no longer made decisions at the 40-year-old bank, according to the people.

The size of the payouts couldn’t be determined, but SVB bonuses range from about $12,000 for advocates to $140,000 for managing directors, according to Glassdoor.com.

After the seizure, the FDIC offered SVB employees 45 days of employment, the people said. The bank had 8,528 employees as of December.

A spokesman for FDIC declined to comment on the bonuses.

Personally, I think many people will view those last-minute annual bonuses in a negative light. There appears to be a precedent for SVB to issues bonuses on specific days. But, doing so while knowing that SVB was already on the verge of collapse is going to look sketchy to some people.