Silicon Valley Bank - Are My Deposits Safe?

Critical Thinking Required

Nathaniel and Tim discussed the collapse of Silicon Valley Bank: what happened and what went wrong. First, unlike most banks, most of SVB's clients are not retail individuals/small businesses, but VC-funded tech/crypto startups. As you know, they are having a tough year. They are burning through cash and thus taking significant deposits out of SVB. SVB had to sell its long-term bonds/Treasuries at a loss to cover its withdrawals. The snowball started to roll from there. Because most of its clients are VC-funded startups, the average account is a whopping $4.2 million, far over the FDIC's threshold of $250,000 per account per bank (the definition is more complex than this). Therefore, when the snowball got going, depositors had a legitimate worry that they may not get their money back, creating a feedback loop that exacerbated the situation. We believe this is an isolated situation because of SVB's unique client base and its management's apparent risk management oversight. Of course, nothing is risk-free (not even U.S. Treasuries), but the average person's accounts are likely safe.