Silicon Valley Bank's depositors pulled more than $40 billion out of the bank in a single day this week, and Rob & Joss In The Morning on KYXY 96.5 in San Diego brought in our Managing Principal, Daren Blonski, to walk listeners through what actually happened. Daren broke it down in plain terms: Silicon Valley Bank took deposits and invested much of that money in bonds, a strategy that worked fine while interest rates were low but backfired once rates climbed over the past year. When the bank had to sell those bonds at a loss to raise cash, and reassured customers it was working to fix things, word spread fast among its concentrated base of tech and venture capital clients. "The tech people, who are all connected with each other, tweeted at each other and said, 'Oh my god, run and take your money out of the bank,'" Daren says. "It doesn't matter how great a bank is, but if you pull $40 billion out unannounced in 24 hours, any bank is going to have a problem." Asked whether everyday savers with accounts at banks like Wells Fargo or Bank of America should be worried, Daren doesn't hesitate. "No, I don't think so at all," he says, pointing to the government's swift response over the weekend. "They backstopped the bank. There used to be this thing called the FDIC limit of $250,000, so your money in a bank is insured up to that amount. The problem is 97.3% of the people at Silicon Valley Bank had more than $250,000 in that bank, but as long as you're being smart about it and spreading your money out through institutions, it should be just fine." He adds that regulators moved to make depositors whole regardless: "They came out on Sunday and said, look, we're going to make sure everyone who has money there is going to get their money back." As for talk of a bigger crisis brewing, Daren isn't losing sleep over it. "I don't think it'll go that far," he says. "I would hope that we've learned some things over the years, and the people who control the political seats in this world understand that if they let things get too out of control, it tends to spiral. I think we saw an example of that on Sunday when they stepped in and backstopped all the depositors at Silicon Valley Bank." Asked point-blank if he's sleeping okay, Daren keeps it simple: "I sleep like a baby."
Key Takeaways
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Silicon Valley Bank's troubles stemmed from investing customer deposits in bonds that lost value as interest rates rose over the past year, not from bad loans.
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A concentrated, tightly connected client base of tech and venture capital depositors turned a bank's problem into a $40 billion bank run within 24 hours.
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The standard FDIC insurance limit of $250,000 per account didn't cover the vast majority of Silicon Valley Bank's depositors, most of whom held far more than that.
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Regulators stepped in over the weekend to backstop all depositors, which is why everyday savers at major banks have no reason to panic.
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Spreading money across multiple institutions remains a smart, simple way to stay within FDIC coverage limits.
Making sure your own money is protected, whichever bank holds it, is part of the bigger financial planning conversation we have with clients. Learn more about our Financial Planning services.
Listen to the interview here: