Here’s what could happen next for Silicon Valley Bank customers

Silicon Valley Bank’s customers, along with investors and bankers across the globe, are waiting for an announcement from U.S. regulators about what comes next after the largest bank failure since 2008.

The Federal Deposit Insurance Corp. said Friday that SVB would reopen on Monday morning, under the control of the newly created Deposit Insurance National Bank of Santa Clara. Once that happens, insured depositors with up to $250,000 in their accounts will be able to access their money.

But the majority of deposits at SVB were not insured, and it is unclear when those customers will be able to access their money — or whether they will get all of it back. SVB’s role as a key bank for start-ups and other venture-backed companies means that many firms could struggle to meet payroll and other obligations if their money is not quickly recovered.

Many investors on Wall Street and in Silicon Valley are anticipating additional information to be announced at some point on Sunday. Here’s a look at some of the paths forward from here.

Regulators’ options

Treasury Secretary Janet Yellen said Sunday that a bailout of SVB is not on the table but that regulators are exploring other options.

“We are concerned about depositors and are focused on trying to meet their needs,” Yellen said on CBS’ “Face the Nation.”

“This is really a decision for the FDIC, as it decides on what the best course is to resolve this firm,” she added.

One potential option could be to use the FDIC’s systemic risk exception tool to backstop the uninsured deposits at SVB. Under the Dodd-Frank Act, that move would need to be made in concert with the Treasury Secretary and the Federal Reserve.

Additionally, Bloomberg News reported on Saturday that regulators were weighing creating a special investment vehicle that would backstop uninsured deposits at other banks, which could keep the bank run from spreading in the coming week.

Another possibility is if another bank stepped up to buy part or all of SVB. This happened during the financial crisis, including when JPMorgan Chase absorbed Washington Mutual in 2008. Bloomberg News reported on Sunday that the FDIC is running an auction process for SVB.

Sen. Mark Warner (D-Va.), a member of the Senate Committee on Banking, Housing, and Human Affairs, said on ABC’s “This Week” that the “best outcome is an acquisition of SVB.”

Historically, such acquisitions have often happened over weekends. Once the bank opens on Monday, more depositors could pull their money out, making a sale more difficult.

FDIC asset sales

If there is no buyer for SVB or a new backstop created by regulators, then the FDIC will be selling off SVB’s assets in order to raise cash that would be used to repay uninsured depositors.

SVB had tens of billions of dollars in agency mortgage-backed securities. Those assets are highly liquid and could in theory be sold quickly with little loss. Regulatory reforms since the 2008 financial crisis have also made mortgage-backed securities much safer than the ones that contributed to financial stability issues back then.

The FDIC said on Friday that uninsured depositors would get a receivership certificate and be paid an advanced dividend payment within a week.

Bloomberg News reported on Saturday night that between 30% and 50% of the uninsured deposits could be returned as soon as Monday.

Other assets held by SVB include loans that are less liquid and may be more difficult to sell. That process could take several weeks or more and end with uninsured deposits being restored at less than 100%.

Some SVB customers, such as businesses, may be able to sell their deposit claims to other financial firms at a discount in order to raise money more quickly than the FDIC process.

Impacts on markets, other banks

Investors have warned that the failure of government regulators to announce a new plan for restoring SVB’s deposits could lead to cascading issues in other small- and mid-sized banks as well as financial markets.

One concerning outcome would be for customers to withdraw money in large amounts from other banks and shift them to the largest U.S. banks that the government has defined as systemically important. Customers withdrew more than $42 billion from SVB on Thursday, and similar moves at other banks could strain those firms even if they have stronger balance sheets.

That fear may appear first in financial markets. The U.S. futures market opens at 6 p.m. ET, and many Asian markets open around that time.

The SVB failure has already had an impact on broader markets. The S&P 500 lost 4.55% last week, while regional bank stocks fell 16% for their worst week since March 2020.

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