Biden administration steps in to save customers of Silicon Valley Bank
SACHA PFEIFFER, HOST:
The Biden administration is stepping in to prevent a potential nationwide banking crisis. This morning, the president is expected to address the failure of Silicon Valley Bank and Signature Bank. Treasury officials say all SVB customers will be able to get all their funds at no cost to taxpayers. Despite that announcement, the stock of onetime rivals like First Republic Bank is trading down significantly, signaling marketplace fears. Leila spoke with NPR tech reporter Bobby Allyn.
LEILA FADEL, BYLINE: So what exactly is the federal government doing to avert a crisis here?
BOBBY ALLYN, BYLINE: So federal regulators are making sure that customers who have collectively billions of dollars in the bank - that they will be able to get their money, right? So many of these customers are tech startups that said they'd have to cease operations and wouldn't be able to pay their employees unless they could access their funds. Now, federal insurance typically covers up to $250,000 when a bank fails. But more than 90% of Silicon Valley Bank accounts were above that amount. So Treasury officials took the pretty extraordinary step here, Leila, of waiving that insurance cap. So that means all deposits in the bank will be covered using an insurance fund that banks pay into. This is not using taxpayer money.
FADEL: OK. So Biden administration officials seem intent on saying this is not a bailout. But is it a bailout?
ALLYN: Right. I mean, in the traditional sense, no. This isn't the 2008 financial crisis bailout that relied on hundreds of billions of dollars of taxpayer money. That's not the case here. Banks are not being rescued here. In another sense, though, it is the government taking emergency actions to save the bank's depositors. And it's quite notable that the government's intervention is a huge lifeline for the tech industry - right? - an industry that historically has been pretty hostile to government regulation and oversight.
FADEL: So tell me more about that. What did the bank do with all the new money it had?
ALLYN: Well, the bank took a big chunk of this new money and invested it in long-term government securities. And this is where the trouble really started. High interest rates have meant those investments in government securities were not paying off. And at the same time, tech startups were running out of cash and having a really hard time fundraising. So they kept going back to the bank and pulling more and more money out. That created a crisis.
So the bank said, oh, God, what are we going to do? They decided to sell off a massive amount of these government securities to make sure they just had enough money in the bank, which triggered all sorts of panic. And customers pulled out $42 billion on Thursday alone. And soon after, the bank went under.
FADEL: So what's next for Silicon Valley Bank?
ALLYN: So there's a lot of question around who is to blame. Prominent venture capitalists like Peter Thiel encourage companies to yank money out of the bank. And that has led some to argue that venture capitalists helped fuel this bank run that put the bank under. Others say Silicon Valley Bank executives made unwise investment decisions and that they should be held responsible. President Biden hinted that the administration isn't done looking into this. He said that, quote, "those responsible for the mess will be held to account." But the situation is a big relief to customers who today can get their money.
FADEL: NPR tech reporter Bobby Allyn, thanks so much.
ALLYN: Thanks, Leila. Transcript provided by NPR, Copyright NPR.