I love the Coen brothers. “The Ballad of Buster Scruggs,” for example, is an underrated modern classic. Remember the scene where James Franco goes to rob Tucumcari’s lonely bank and the deranged cashier, wonderfully played by Stephen Rootis he talking about having to jump once on the counter with his scattergun to avoid a run on the bank?
It’s kind of what you think of when you hear the phrase “bank run”. It sounds like something from the distant past, something our ancestors must have worried about long before the days of FDIC insurance.
As Silicon Valley Bank depositors recently proved, we are not that different from our ancestors. A modern banking race quickly ended Silicon Valley Bank’s 40-year history, regulators rushing to seize its deposits on March 10.
Late on March 8, Silicon Valley Bank revealed to investors that it was short of capital. The bank was selling bonds at a loss and said it needed to raise $2.25 billion. Apparently, fearing a bank run, some in the venture capital community then told their portfolio managers to move funds — funds that Silicon Valley Bank didn’t necessarily have if the withdrawals all came at once. These communications, which spread to social media, perhaps unsurprisingly, sparked a run on the banks.
On March 9, customers have withdrawn over $42 billion from their accounts. It’s “billion” with a “b”, in a single day. In comparison, the bank panic of 2008 which led to the failure of Washington Mutual took place over 10 days and only involved $16.7 billion in withdrawals. Silicon Valley Bank ended the day with a negative cash balance of $958 million.
Silicon Valley Bank had long been a favorite of tech startups. Because its customers were overwhelmingly businesses with more than $250,000 in their accounts, very few of Silicon Valley Bank’s deposits were FDIC insured.
However, federal officials were apparently working over the weekend, and late on Sunday, March 12, Federal Reserve Chairman Jerome Powell, US Treasury Secretary Janet Yellen and FDIC Chairman Martin Gruenberg issued a joint statement. saying all Silicon Valley Bank depositors will be cured anyway. Officials promised that this would not result in losses to US taxpayers.
Banking regulators have also indicated that depositors at Signature Bank will be compensated. You may have noticed that New York-based Signature Bank also just failed. This institution was distinguished by having almost a quarter of its deposits come from the cryptocurrency sector as if from the not too distant past.
Federal authorities have been very careful not to call these bailouts and emphasize that no cost will be borne by taxpayers. Officials say their goal is to bolster public confidence in the US banking system.
They will have a tough line to hoe over there. I think the nuance as to whether or not it is a bailout going to be lost on a lot of people. Additionally, in most parts of the country, it would be hard to find depositors less friendly than Silicon Valley tech companies and those dependent on a New York-based crypto industry bank. Talk about a public relations nightmare.
People will look at where these two bank failures happened and make assumptions. These days it’s pretty easy to imagine a floating conspiracy theory on TikTok about Bank of America or whatever makes average everyday Americans run out and withdraw their deposits. However, this is not what happened. Normal Americans are going to wonder why they can’t crash their banks when apparently Silicon Valley can’t.
Unfortunately, Silicon Valley Bank didn’t have Stephen Root to hop across the counter with a shotgun and stop the whole mess. What’s left of the bank will probably find a buyer and everything will be more or less fine (unless you are a stock investor or a holder of Silicon Valley Bank bonds, in which case you will lose a lot of money). Still, it must mean something that the first financial institutions to succumb to Panic over rising interest rates were a technology industry bank and a crypto industry bank. This is going to leave a lot of middle Americans shaking their heads.
Jonathan Wolf is a civil litigator and author of Your debt-free JD (affiliate link). He taught legal writing, wrote for a wide variety of publications, and made both financial and scientific knowledge his business and pleasure. Any opinions he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization he is affiliated with. He wouldn’t want to share the credit anyway. He can be reached at email@example.com.