Big VC, Tech Got Backstop for Billions in Uninsured SVB Deposits
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2023-06-23 18:53
When federal regulators stepped in to backstop all of Silicon Valley Bank’s deposits, they saved thousands of small

When federal regulators stepped in to backstop all of Silicon Valley Bank’s deposits, they saved thousands of small tech startups and prevented what could have been a catastrophic blow to a sector that relied heavily on the lender.

But the decision to guarantee all accounts above the $250,000 federal deposit insurance limit also helped bigger companies that were in no real danger. Sequoia Capital, the world’s most prominent venture-capital firm, got covered the $1 billion it had with the lender. Kanzhun Ltd., a Beijing-based tech company that runs mobile recruiting app Boss Zhipin, received a backstop for more than $900 million.

A document from the Federal Deposit Insurance Corp., which the agency subsequently said it mistakenly released unredacted in response to a Bloomberg News Freedom of Information Act request, provides one of the most detailed glimpses yet into the bank’s big customers.

The FDIC, which has been selling off pieces of the bank since its failure, asked that Bloomberg destroy and not share the depositor list, saying the agency intended to “partially” withhold some details from the document “because it included confidential commercial or financial information,” according to a letter from an attorney for the regulator. The agency subsequently declined to comment on the substance of the information in the document.

US regulators’ decision to declare a “systemic risk exception” and make all depositors at Silicon Valley Bank whole came after a white-knuckled weekend as tech founders digested SVB’s collapse on Friday, March 10. President Joe Biden described the solution as one that “protects American workers and small businesses, and keeps our financial system safe.”

Treasury Secretary Janet Yellen cast the government’s response — including backstopping all depositors — as necessary. “American households depend on banks to finance their homes, invest in an education, and otherwise improve their standards of living. Businesses borrow from these institutions to start new companies and expand existing ones,” she said at an industry conference the following week before discussing the intervention.

But the decisions that government agencies, including the FDIC, made in a frantic few days after SVB failed were immediately controversial. Some critics said that making all depositors whole at the lender and Signature Bank, which failed March 12, created a moral hazard. A fierce debate is also raging over whether the insurance limit needs to be raised for businesses.

Former Vice President Mike Pence argued that backstopping all depositors amounted to a bailout, a depiction the Biden administration has pushed back against strenuously. Pence blasted the government’s decision to insure all deposits, in part, because the move would cover Chinese companies that did business with the bank.

In May, the FDIC proposed tagging the largest banks with billions of dollars in extra fees to replenish the US government’s bedrock deposit insurance fund after it was tapped to backstop deposits above the $250,000 threshold. At the time, the regulator estimated the decision to cover all depositors at SVB and Signature cost the fund about $15.8 billion.

FDIC Chairman Martin Gruenberg has previously said that at SVB the guarantee to uninsured depositors covered small and midsize business, as well as those with very large balances, and that the bank’s top 10 depositor accounts held $13.3 billion total.

The new document underscores that in addition to serving a legion of startups and fledgling businesses, SVB was a go-to bank for tech industry giants, including some that have kept their relationships with the bank confidential.

Silicon Valley Bank and parent SVB Financial Group Inc. were also listed as having a combined $4.6 billion in deposits. SVB Financial has argued in its bankruptcy case that at least $2 billion in deposits the parent had with the bank should be returned. Federal regulators have said SVB Financial, which declined to comment on the document, must apply to the bank’s receiver for that money.

--With assistance from Steven Church and stacy-marie ishmael.

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