The Biden administration is taking steps to save Silicon Valley Bank clients. NPR

Federal officials are trying to restore public confidence in the banking system after the collapse of a Silicon Valley bank.


The Biden administration is taking steps to avert a potential nationwide banking crisis. The president is expected to address the failure of Silicon Valley Bank and Signature Bank this morning. Treasury officials say all SVB customers will be able to receive all of their funds without taxpayers. Despite the announcement, shares of one-time rivals such as First Republic Bank are down significantly, signaling market fears. Layla spoke with NPR tech reporter Bobby Allyn.

LEILA FADEL, BYLINE. So what is the federal government doing to prevent a crisis here?

BOBBY ALLIN, BYLINE. So the federal regulators are making sure that the customers who collectively have billions of dollars in the bank that they can get their money, right? Many of these clients are tech startups that said they had to shut down and wouldn’t be able to pay their employees until they could access their funds. Now, federal insurance typically covers up to $250,000 when a bank fails. But more than 90% of Silicon Valley Bank’s accounts exceeded that amount. So Treasury officials here, Leila, took the rather unusual step of waiving that insurance cap. So it means that all deposits in the bank will be covered by the insurance fund that the banks pay. This is not the use of taxpayers’ money.

FADEL: Okay. So Biden administration officials seem intent on saying this is not a bailout. But is it salvation?

ALLIN: That’s right. In other words, in the traditional sense, no. This is not the 2008 financial crisis bailout that relied on hundreds of billions of dollars in taxpayer money. That’s not the case here. Banks are not saved here. In another sense, however, it is the government that takes urgent action to save the bank’s depositors. And it’s pretty remarkable that government intervention is a huge lifeline for the tech industry, isn’t it? – an industry that has historically been quite hostile to government regulation and control.

FADEL: So tell me more about that. What did the bank do with all the new money it had?

ALLYN: Well, the bank took a large portion of this new money and invested it in long-term government securities. And that’s where the trouble really started. High interest rates meant that these investments in government securities did not pay off. And at the same time, tech startups were running out of cash and really struggling to fundraise. So they kept going back to the bank and withdrawing more and more money. It created a crisis.

So the bank said, oh my God, what are we going to do? They decided to sell huge amounts of these government securities to make sure they had enough money in the bank, which caused all kinds of panic. And customers withdrew $42 billion on Thursday alone. And soon the bank failed.

FADEL: So what’s next for Silicon Valley Bank?

ALLYN: So there are a lot of questions about who is to blame. Prominent venture capitalists like Peter Thiel encourage companies to take money out of the bank. And that has led some to argue that venture capitalists helped fuel this bank run that put the bank on hold. Others say Silicon Valley Bank executives made unwise investment decisions and that they should be held accountable. President Biden has hinted that the administration is not done looking into the matter. He said that, quote, “those responsible for the mess will be held accountable.” But the situation is a big relief for customers who can get their money today.

FADEL: NPR tech reporter Bobby Ally, thank you very much.

ALLIN: Thank you, Layla.

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