What is Silicon Valley Bank?
Founded in 1983 after a poker game, Silicon Valley Bank was an important engine for the tech industry’s success and the 16th largest bank in the US before its collapse. It’s easy to forget, based on the tech industry’s lionization of nerds, but the actual fuel for startups is money, not brains.
What happens to Silicon Valley Bank’s customers?
Most banks are insured by the Federal Deposit Insurance Corporation (FDIC), a government agency that’s been around since the Great Depression. So of course, the accounts at Silicon Valley Bank were insured by the FDIC — but only up to $250,000. That’s how FDIC deposit insurance works.
That might be a lot of money for an individual, but we’re talking about companies here. Many have burn rates of millions of dollars a month. A recent regulatory filing reveals that about 90 percent of deposits were uninsured as of December 2022. The FDIC says it’s “undetermined” how many deposits were uninsured when the bank closed.
How bad could it get?
Even small disruptions to cash flow can have drastic effects on individuals, companies, and industries. So while one very likely outcome is that the uninsured depositors will eventually be made whole, the problem is that right now they have no access to that money.
The most immediate effect is on payroll. There are lots of people who are wondering if their next paycheck will be disrupted. Some people already know their paychecks will be; a payroll service company called Rippling had to tell its customers that some paychecks weren’t coming on time because of the SVB collapse. For some workers, that’s rent or mortgage payments, and money for groceries, gas, or childcare that isn’t coming.
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