Customers are seeking to find out what this means for the funds they had in their accounts.
Last week, Silicon Valley Bank became the second largest bank failure in American history and new reports have revealed that over 85 percent of its deposits were without deposit insurance.
The FDIC has been tasked with returning money to the bank’s customers where applicable.
The Federal Deposit Insurance Corporation has taken over about $175 billion in customer accounts and will be returning money to customers where it can. That said, over 85 percent of the deposits at the Silicon Valley Bank were uninsured from deposit insurance, according to recent regulatory filing estimates.
The reason is that deposit insurance is intended for everyday bank customers and reaches a limit at $250,000. It was a run on deposits that caused the bank to collapse in the first place. Many startups that had accounts in the bank aren’t eligible for coverage for the money they had been using to run their companies and pay their staff. Investigations are still underway to determine how much of that money remains.
The Silicon Valley tech sector was already facing a tough wave of belt tightening due to the macroeconomic conditions. Layoffs have been increasingly frequent and stock prices have been fizzling. The bank’s crumble is likely to worsen those challenges and may have an impact on the broader economy.
The lack of deposit insurance has placed tech startups throughout the region at financial risk.
“It’s like a Lehman Brothers moment for Silicon Valley,” said a startup founder from the area whose company had millions of dollars in Silicon Valley Bank. “It feels like something that never should have happened, because it’s such a trustworthy entity.”
The Santa Clara-based bank first opened its doors in 1983 and grew to become the 16th largest in the country. It has become known for its close ties with technology entrepreneurs. Last year, it clamed that “nearly half” of all US venture-backed startups were its customers.
However, last week, the bank announced that it was facing a liquidity freeze and that it was holding an emergency fundraiser as it sold off US government bonds at a loss in order to cling to its position.
The announcement lead to panic throughout Silicon Valley as many companies sought to withdraw the money they had in the bank before they risked losing it. Investors withdrew from bank stocks on a larger scale the following day, causing the largest US banks to lose $52 billion last Thursday.