People who know about the situation say that US regulators in charge of the emergency breakup of SVB Financial Group are in a rush to sell assets and make some of their clients’ uninsured deposits available as soon as Monday.
The first payout, the amount of which is still up in the air, would be used to help the firm’s troubled customers, many of whom are Silicon Valley entrepreneurs and their companies. As the bank’s assets are sold, more money will be given out as well. The amount will depend in part on how well the Federal Deposit Insurance Corp. does by Sunday night in turning assets into cash. Figures being tossed around behind the scenes for an initial payment range from 30% to 50% or more of uninsured deposits, people who spoke on the condition of anonymity said.
A spokesperson for the FDIC didn’t answer questions about its plans when asked.
The business clients of Silicon Valley Bank are desperate to get their money so they can keep running and pay their employees. The bank failed on Friday, making it the biggest US bank to fail in more than a decade. It fell apart in less than 48 hours after saying it wanted to raise money. In the past few years, the company grew as it took in deposits from tech startups. However, it started losing money when those clients ran out of money and started taking out their balances.
At the end of last year, Silicon Valley Bank had more than $175 billion in deposits and $209 billion in total assets. However, when the bank needed cash, selling these assets was expensive. That’s because SVB bought a lot of bonds and Treasuries, which lost value when the Federal Reserve raised interest rates. Even though the FDIC insures deposits up to $250,000, most of the money held at SVB was much more than that. The agency says that all protected deposits will be made available on Monday.
The FDIC said on Friday that the amount of uninsured deposits was still being worked out. The watchdog said it will soon pay an advance dividend to depositors who are not covered by insurance. Future payments will be made later. Executives on Wall Street think that there will be a market for selling the rights to get deposits back.
Behind the scenes, senior Wall Street executives have been figuring out the value of the bank’s holdings and how much cash could be taken out quickly if there wasn’t a bailout or a deal to sell all or part of the bank to a stronger institution.
In those circles, paying less than half, like 30%, is seen as too little to keep bad things from happening in the tech industry and maybe even outside of it. In a phone interview on Saturday, William Isaac, a former head of the FDIC, said that a partial payment up front could at least help. Isaac, who was in charge from 1981 to 1985, said, “It doesn’t completely solve the problem or take away the pain, but it makes it a lot easier for bank customers to deal with their losses.”