The Silicon Valley Bank Bailout, Explained

What happened: Last Friday, Silicon Valley Bank (SVB), a widely used bank in the tech sector, collapsed in a bank run. Investors were concerned about the bank’s solvency after it publicized a large loss, prompting many to pull their funds and cause a bank run. The Federal Deposit Insurance Corporation (FDIC) took control of deposits. Signature Bank, based in New York, was also closed by regulators as the second massive bank failure in three days.

Concerns and FDIC limits: SVB is the 16th largest bank in the nation, which lends to private equity and almost half of all venture-backed American companies. Because the FDIC limits its insurance for deposits at $250,000, it was unknown at the time of the run whether 95 percent of the depositors at the bank, which were over that limit, would see their funds again.

Regarding regulations: Back in 2015, SVB's president pressed Congress to weaken risk regulations and to exempt more banks from rules passed after the 2008 financial crisis. The lobbying successfully exempted the bank from stringent stress tests and allowed the bank to engage in risky and possibly irresponsible behavior that led to the bank's run.

The bailout debate: A fierce debate ensued about whether Silicon Valley Bank depositors should be bailed out. Those in support claimed that avoiding a bailout would trigger a chain of widespread bank failures and that small tech start-ups would be wiped out. Those opposed argued that a bailout would reward risky bank behavior and discounted claims of other bank failures.

Biden's bailout: Though President Joe Biden's Treasury Secretary Janet Yellen announced that there would be no bailout, the Treasury, the Federal Reserve, and the FDIC announced that the government would ensure depositors have access to all their money, bailing SVB out. The Fed also established a new bank program to prevent other banks from encountering similar liquidity problems.