I love the Coen Brothers. “The Ballad of Buster Scruggs,” for instance, is an underrated modern classic. Remember the scene where James Franco is going to rob the lonely Tucumcari bank and the deranged teller, played wonderfully by Stephen Root, is jabbering on about having to jump up on the counter with his scattergun one time to prevent a run on the bank?
That is kind of what you think of when you hear the phrase “bank run.” It seems like something from the deep past, something our ancestors had to worry about long before the days of FDIC insurance.
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As Silicon Valley Bank depositors recently proved, we’re not so different from our forebears. A modern-day bank run swiftly ended the 40-year history of Silicon Valley Bank, with regulators swooping in to seize its deposits on March 10.
Late on March 8, Silicon Valley Bank disclosed to investors that it was short on capital. The bank was selling off bonds at a loss, and said it needed to raise $2.25 billion. Reportedly, fearing a bank run, certain members of the venture capital community then told their portfolio managers to move funds — funds Silicon Valley Bank didn’t necessarily have if the withdrawals came all at once. These communications, which spread to social media, perhaps not so surprisingly, caused a bank run.
On March 9, customers pulled more than $42 billion from their accounts. That’s “billion” with a “b,” over the course of a single day. In comparison, the 2008 bank run that led to the failure of Washington Mutual took place over 10 days and involved only $16.7 billion worth of 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. Since its customers were overwhelmingly corporations with more than $250,000 in their accounts, very few of Silicon Valley Bank’s deposits were FDIC insured.
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However, federal officials were apparently working over the weekend, and late on Sunday, March 12, Federal Reserve Chair Jerome Powell, U.S. Treasury Secretary Janet Yellen, and FDIC Chair Martin Gruenberg released a joint statement saying that all Silicon Valley Bank depositors will be made whole anyway. Officials promised that this will not lead to losses for U.S. taxpayers.
Banking regulators also indicated that Signature Bank depositors would be made whole. You may have noticed that New York-based Signature Bank also just failed. This institution was notable for having almost a quarter of its deposits come from the cryptocurrency sector as of the not-too-distant past.
The feds have been very careful not to call these bailouts, and to emphasize that no costs will be borne by taxpayers. Officials say their aim is to bolster public confidence in the U.S. banking system.
They will have a tough row to hoe there. I think the nuance as to whether this is or is not a bailout is going to be lost on a lot of people. Plus, in most parts of the country, it would be hard to find less sympathetic depositors than tech companies in Silicon Valley and those relying on a New York-based crypto industry bank. Talk about a public relations nightmare.
People are going to look at where these two bank failures happened, and make some assumptions. In this day and age, it’s pretty easy to imagine some conspiracy theory floating around on TikTok about Bank of America or whatever causing everyday average Americans to run out and pull their deposits. That isn’t what happened though. Normal Americans are going to wonder why they can manage not to cause their banks to collapse when apparently Silicon Valley cannot.
Unfortunately, Silicon Valley Bank didn’t have Stephen Root to jump up on the counter with a shotgun and prevent this whole mess. What’s left of the bank will probably find a buyer and everything will be more or less fine (unless you’re a Silicon Valley Bank equity investor or bondholder, in which case you will be losing a lot of money). Still, it has to mean something that the first financial institutions to succumb to panic stemming from rising interest rates were a tech industry bank and a crypto industry bank. It’s 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 has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at [email protected].