If money could’ve talked this spring, it would’ve been saying “goodbye.”
Or so politicians, businesses and individuals around America thought when Silicon Valley Bank (SVB) collapsed on March 10 in one of the biggest bank failures in U.S. history, starting runs at other regional lenders.
That’s why the Federal Deposit Insurance Corp. (FDIC) quickly stepped in and backstopped SVB’s more than $175 billion in deposits, many of which were uninsured, to prevent further contagion across the broader banking system.
This as a new FDIC document — allegedly mistakenly released unredacted in response to a Bloomberg News Freedom of Information Act request — has revealed the top 10 customer balances at the failed lender.
They include Circle Financial, the issuer of the USDC stablecoin, with over $3.3 billion in deposits; the venture capital giant Sequoia Capital with more than $1 billion; Kanzhun Ltd., a Beijing-based tech company with over $900 million; FinTech companies Bill.com and Marqeta who held total balances of $761 million and $634 million respectively; the Jeff Bezos-funded life extension therapy startup Altos Labs with $680 million; and SVB as well as its own parent SVB Financial Group Inc. who were listed as having a combined $4.6 billion in deposits.
Rounding out the top 10 were audio and video streaming device maker Roku with $420 million and, somewhat ironically, IntraFi Network — a platform providing FDIC-insured deposit placement services to financial institutions — with $410 million.
Each of those businesses received tens of millions, if not more, of U.S. taxpayer money for free when uninsured depositors were bailed out. None have immediately replied to PYMNTS’ request for comment.
Would the loss of their deposits truly have created “systemic risk and significant economic and financial consequences?”
We will never know.
Read More: Regulators Blame Signature for Own Failure and Themselves for SVB’s
Meanwhile, as reported here by PYMNTS, SVB customers who held their money in the lender’s Cayman Islands branch were not nearly so fortunate as their U.S. peers.
That’s because the FDIC backstop didn’t apply to SVB’s island-based branch, and all the customer accounts — totaling around $38 million — were wiped down to zero.
Making matters worse, per the report, when First Citizens BancShares acquired the Cayman Island branch’s loans from SVB, those firms discovered that while they had lost their money, they had still kept their debts.
The funds are now under pressure to repay their short-term loans, but the money that they had earmarked to repay the debt was in the Cayman bank accounts.
See Also: Senators Skewer Failed Bank Execs for ‘Stupid Bets,’ Selfish Management
Now, many of the firms, which include VC funds in Hong Kong and mainland China, have filed a petition to initiate a windup procedure. A court hearing is scheduled for Thursday, June 29.
While an unfortunate situation for the Cayman Island depositors, observers are wondering why the situation turned out so different for the billions held at SVB by other VC giants like Sequoia.
After all, CFOs and fund managers holding deposits that size at a single institution without doing any meaningful risk management verges on reckless.
The decision to guarantee all accounts above the $250,000 FDIC limit, which was widely lauded by lawmakers and private enterprises, also helped bigger companies that were in no real danger.
President Biden described the FDIC solution as one that “protects American workers and small businesses, and keeps our financial system safe,” while also ensuring that “taxpayer dollars are not put at risk.”
The FDIC plans to extract $15.8 billion in extra fees from some of America’s largest banks over the next two years to recoup its losses after the rescues of Silicon Valley Bank and Signature Bank.
Read more: 12 CFOs on How SVB’s Collapse Transformed the Finance Department
Bank deposits are part of a long-term relationship, but modern communications technology and social media have made business relationships less sticky. So has the rise of digital and embedded banking and the commoditization of many banking products.
As PYMNTS previously reported, while many observers believe the turmoil with the regional banking landscape will, and already has, result in a flight to quality around “too-big-to-fail megabanks,” others believe that the situation could lead to a fundamental shift in the way the U.S. financial system functions.
We’re always on the lookout for opportunities to partner with innovators and disruptors.
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