EDITOR'S NOTE: A correction to this story was made on March 16, 2023 to state that the Depositors Insurance Fund insures Massachusetts banks, and only if they have paid into the fund.

President Joe Biden’s announcement that depositors in Silicon Valley Bank would be made whole was welcome news to those anxious to get their money back. The failed bank was taken over by the Federal Deposit Insurance Corporation on Friday. Depositors were promised they could access all their funds on Monday.

But the crisis caused enough concern among Cape Codders that depositors called into area banks on Monday to clarify their understanding of the effect they might feel. At The Cooperative Bank of Cape Cod, staff members fielded calls from customers asking about their accounts, whether they should diversify where they hold their assets, and whether to move their funds to banks fully covered by the Federal Deposit Insurance Corporation and the Depositors Insurance Fund.

“This is not a systemic banking issue,” Lisa Oliver, The Cooperative Bank of Cape Cod CEO and President, said. “This is not a government bailout.”

What happened to Silicon Valley Bank?

Silicon Valley Bank offered higher rates on deposits than its rivals, according to a report by Fidelity. It spent much of that cash on long-term, high-yielding bonds to fund those rates. Unfortunately, bank officers didn’t keep enough cash — or liquidity — on hand. When the Federal Reserve Board began to raise interest rates, the value of those bonds dropped, as did the value of the bank's investments.

Last Wednesday, the now-shuttered Silicon Valley Bank announced it had suffered a $1.8 billion after-tax loss and urgently needed to raise more capital to quell depositors' concerns, according to USA Today. When the bank tried to raise capital by selling bonds at a loss.

But the bank got to a point where the losses were so high, customers began to fear the bank couldn't guarantee access to every customer's funds. That fueled a massive bank run which caused the FDIC to step in, USA Today reported.

Is my money protected if my bank fails?

When banks are federally insured, the Federal Deposit Insurance Corporation insures deposits up to $250,000 per depositor, per bank. Personal and business deposits, savings, checking, and NOW accounts, Certificates of Deposits, money market and retirement accounts are covered, according to the Depositors Insurance Fund website.

More:Ripple effect: How Silicon Valley Bank collapse is affecting other US banks

The Depositors Insurance Fund is an industry-sponsored insurance fund in Massachusetts that covers all deposits above the Federal Deposit Insurance Corporation limit. Member banks in Massachusetts pay into the fund for this insurance.

Biden said taxpayers will not be held responsible for the Silicon Valley Bank failure, according to USA Today.

Will depositors be okay?

Silicon Valley Bank depositors will be made whole, according to Biden. The government is making a special systemic risk exception for depositors at Silicon Valley Bank and Signature Bank, according to Seamen’s Bank President and CEO Lori Meads. The bank has branches in Provincetown, Truro, Wellfleet and Eastham.

The U.S. Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation announced the systemic risk exception on Monday. Banks with $250 billion or more in assets are considered “systemically important,” by U.S. federal regulators. Should something happen to them, experts fear it could trigger a financial crisis.

Silicon and Signature, which was tied to cryptocurrency, were not considered systemically important before the run on cash withdrawals.

What happens to investors?

The government will not bail out investors. “If you’re an investor in Silicon Valley Bank, you've pretty much kissed that money goodbye,” said Meads. “You invest at risk. When it doesn’t go your way, you lose your money.”

Why didn’t Dodd-Frank protect those assets?

In a New York Times opinion piece by Sen. Elizabeth Warren, the bank's failure can be traced to a rollback of regulations during the Trump administration. The Dodd-Frank bill was passed after the financial recession of 2008. The bill required banks with assets of more than $50 billion to undergo a series of stress tests to make sure they could withstand financial challenges. But those regulations were changed in 2018 during the Trump administration and only banks with more than $250 billion were subject to stringent capital and testing requirements. Had they been in place, the failure of Silicon Valley Bank would not have happened, Warren said.

The rollback was a bipartisan one. It left fewer than 10 big banks in the U.S. subject to strict federal oversight. This enabled thousands of banks with less than $250 billion in assets to not be subject to regulations they considered too stringent.

Silicon Valley Bank had assets approaching $209 billion. It was the country's 16th largest bank, according to an article by CNBC. This is the second largest bank failure in the U.S. after Washington Mutual in 2008.

Biden said Monday that he will ask Congress and banking regulators to further strengthen the rules for banks to make it less likely that a similar bank failure happens again and to help protect jobs and small businesses, USA Today reported.

Bank executives hit pay dirt before the collapse.

Silicon Valley Bank executives gave themselves significant bonuses in the days just before the collapse. Warren called for them to be accountable. CEO Greg Becker sold $3.6 million of company stock, or 12,451 shares, on Feb. 27, according to an article in Fortune Magazine. He took home $9.9 million in compensation last year, including a $1.5 million bonus for boosting bank profitability — and its riskiness. Joseph DePaolo of Signature took home $8.6 million.

"We should claw all of that back, along with bonuses for other executives at these banks," Warren wrote.

Becker's stock sale wasn't considered an insider transaction because he followed certain protocols, according to Meads, Seamen's CEO.

Those protocols were set to change, requiring at least a 90-day 'cooling off' period for executive trading plans on April 1.

What depositors can do to protect their money

Oliver and Meads urge all depositors to make sure their banks are federally insured and that they are members of the Depositors Insurance Fund. Use the FDIC's online BankFind tool or contact your bank directly.

Contact Denise Coffey at dcoffey@capecodonline.com.

Gain access to premium Cape Cod Times content by subscribing.

This article originally appeared on Cape Cod Times: Silicon Valley Bank collapse worries Cape Codders, banks say money safe