Ah, the classics and good old days always come back.
Yeah, I think we can call this a “deathburger” event like we used to in the old days.
Silvergate Bank went tango uniform the other night as we documented the other night. But today’s failure to even open the Silicon Valley Bank before their branches even opened during daytime hours is a seismic event.
From the failed bank site of the FDIC:
FDIC Creates a Deposit Insurance National Bank of Santa Clara to Protect Insured Depositors of Silicon Valley Bank, Santa Clara, California
The Press Release in all its gory glory:
For Immediate Release
WASHINGTON – Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.
All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.
Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.
As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.
Customers with accounts in excess of $250,000 should contact the FDIC toll–free at 1-866-799-0959.
The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition. Loan customers should continue to make their payments as usual.
Silicon Valley Bank is the first FDIC–insured institution to fail this year. The last FDIC–insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.
The bolding is my own of course because media reports tonight indicate around 93% of those deposits were “uninsured” by the FDIC.
Let that sink in; this means that about $161 billion in deposits were uninsured.
That is not Microsoft, Apple, Google, etc. These are small time to mid-size startups and some well established companies who believed that this bank was solvent and their CFO’s failed to do their fiduciary responsibility to protect their companies.
Wait, wut?
How can there be any fiduciary responsibility to know this might happen you might ask.
Maybe this is a hint:
Silicon Valley Bank had no official chief risk officer for 8 months while the VC market was spiraling
Uh, pardon me, but doesn’t this make the CEO and CFO responsible for fiduciary responsibilities and hence potential at risk for civil, perhaps criminal penalties? I’ll need my banking and legal experts to chime in on that one.
So a bank, with no CRO, no testing to validate the assets on the books were ever going to potentially be marked to market reality, and a stock price which peaked at $597.16 is now a $0.00.
Hell, without even opening on Friday, no one could have seen this coming until it was halted at 9:12 a.m. and it got ugly fast.
Here is your final chart, courtesy of StockCharts.com for Silicon Valley Bank:
Now for the other shoes.
Axel Merk highlighted what happened and I started digging through the 8-K’s folks and it is BRUTAL:
Why is this important?
More on that later, but pray for the poor workers at some of these start up companies who did not get a paycheck today. Because $250,000 of FDIC insurance does not cover the payroll for a company with 100+ employees in California, especially when the earliest it will show up in any account is tonight or Monday.
In fact there were actual by God bank runs just like the good old days of 2008:
THIS IS OUTSIDE ONE OF THE SILICON VALLY BANKS BRACH $SIVB pic.twitter.com/aFJEBQLVu6
— GURGAVIN (@gurgavin) March 10, 2023
Jay Powell, congrats.
You have your Burns/Bernanke historical error in coordination with 4 of the worst Presidents America has ever elected since the year 2000.
And so it begins again.
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