Report: SVB Collapse Triggered Record $285 Million Penalty

Silicon Valley Bank’s (SVB) collapse was one of the largest banking failures in American history.

And according to a report Tuesday (March 12) by Bloomberg News, that collapse brought with it the largest penalty since before the 2008 financial crisis: $285 million in fees to retire emergency financing the lender had gotten from the Federal Home Loan Bank (FHLB) system.

The report, citing an internal Federal Deposit Insurance Corp. (FDIC) document obtained by Bloomberg, said that SVB had received billions in financing in an eleventh-hour effort to withstand the run on deposits that led to its seizure by regulators.

The FHLB system was established during the Great Depression to back mortgage lending. In addition to SVB, two other lenders that went out of business last year — Silvergate Capital and Signature Bank — had also borrowed billions from the program.

SVB and Signature both collapsed within days of each other last March, the same week that saw Silvergate voluntarily close its doors.

Elliot Sloane, a spokesman for the San Francisco FHLB, which floated the money to SVB, told Bloomberg the bank “worked diligently and urgently to provide critical liquidity to Silicon Valley Bank in the days prior to its failure.” 

When SVB went under, the FHLB was within its rights to recall its money but chose not to do so, said Sloane. 

Instead, the bridge bank that took over SVB moved to repay the advances early and take on the cost laid out in the contract, thus getting full control of SVB’s assets that had been pledged as collateral to the home-loan bank.

Marking the one-year anniversary of the SVB collapse earlier this week, PYMNTS wrote that the lessons of its failure extend beyond the world of regional banking.

“In a fundamental shift in the corporate world, a dozen CFOs noted to PYMNTS in a series of interviews that CFOs are now tasked with managing liquidity levels and cash availability at the board, management and even employee levels,” that report said. “They’ve been crafting bank-risk frameworks and looking toward vendor and third-party risks, where financial supply chains are at least as important as all other business relationships.”

What’s not known, that report added, is whether those new measures will be enough. Bank runs look a lot different than they used to, PYMNTS wrote, and the “only certainty is that the banking system will be tested again.”