We are writing to you on a Sunday to try and get ahead of Monday’s news cycle. We felt it was important to help you understand the situation and what we are doing as your Personal CFO.
Silicon Valley Bank has failed following a run on its deposits. There is concern that this type of situation could occur at other regional sized banks.
Why did it happen?
Customers of most banks have been taking cash out to invest it in higher yielding money markets, CDs and Treasuries. Additionally, because SVB caters to tech companies and startups, the cash burn of those companies has been higher recently due to new venture capital money drying up with the tech market pull back. With all the outflows, SVB needed higher levels of liquidity to meet those withdrawal requests. To create that liquidity, SVB had to sell $21billion of its investments at a $1.8billion loss. They then tried to raise $2.25billion of new capital which sparked concerns in the marketplace. Essentially this signaled they could not meet the liquidity demands. This has a domino effect as SBV customers made a “run on the bank” and started pulling their deposits. SVB could not meet these requests and the bank failed. The Federal Deposit Insurance Administration took over the bank on Friday.
What comes next?
This morning, Treasury Secretary Janet Yellen was interviewed on CBS’s Face the Nation stating “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” but she didn’t provide specifics of those plans. While not required to do so, the Treasury and the Federal Reserve could step in and provide a solution for SVB customers to have full access to their deposits. This would prevent a ripple effect from hurting the customers who need their cash to run their company operations, make payroll and fulfill their debt obligations.
We are expecting a formal statement from the Department of the Treasury or Federal Reserve Sunday night or Monday morning.
Who is at risk?
Those who bank with SVB are being told they will have access to 50% of their deposits on Monday morning and the remaining is to be seen over the next 3 to 6 months. This situation could cause a ripple effect where customers of other regional banks pull their money out and move their deposits to one of the four largest banks in the country: Chase, Bank of America, Citi, Wells Fargo.
What are we doing for Crown clients?
On Monday morning, the Crown team will be reviewing client banking relationships to determine if any are at-risk. If there is concern, we will assist with a plan for quickly moving the relationship to a more secure bank. Regardless of which bank you use, FDIC insurance is applied to all deposits at US banks up to $250,000 per depositor, per account. Accounts with higher balances will need to be assessed.
If you have any questions or concerns with your specific situation, please don’t hesitate to contact your Crown advisor. We’re keeping a close eye on the situation and will provide updates as things progress.