The run on Silicon Valley Bank SVB was not your average bank run, it was so fast it shocked even the most seasoned regulators as depositors siphoned $42 billon from the bank in just a matter of hours, leaving the firm with a negative cash balance of $958 million on March 9.
This is a very large group of connected depositors, a group of connected depositors in a very, very fast run, faster than the historical record would suggest, said Jerome Powell, Federal Reserve Chairman, at a press conference after policymakers raised interest rates by 25 basis points last week.
It's very different from what we've seen in the past, and it does suggest that there's a need for regulatory and supervisory changes just because supervision and regulation need to keep up with what's happening in the world, Powell said.
On Tuesday, Fed Vice Chair Michael Barr, the central bank's point for bank supervision, will tell lawmakers at a hearing on the SVB and Signature Bank collapses that the banks top brass were asleep at the wheel, noting that SVB's failure is a textbook case of mismanagement, according to prepared testimony. He said that the bank didn't manage the risks of its liabilities. These liabilities were mostly composed of deposits from venture capital firms and the tech sector, which were highly concentrated and could be volatile. There was a social media fury before the Federal Deposit and Insurance CorporationFederal Deposit and Insurance Corporation FDIC and the California state regulators took over SVB, due to the speedy cash grab and poor management.
According to Barr's observation, there are numerous issues that took place with SVB, Robert Wolf, the former CEO of UBS Americas, now CEO of 32 Advisors, he said that social media and digital finance moved faster than we have seen in banking, causing a run in 24 hours and the concentrated client base at SVB made it less diversified than most banks of similar size.
California s regulators, the Department of Financial Protection and Innovation, did not respond to FOX Business request for comment, while the FDIC declined to comment.
Early Monday, First Citizens Bank struck a deal to absorb SVB's assets, sending the stock up 53%.
As of March 10, 2023, Silicon Valley Bridge Bank, National Association, had approximately $167 billion in total assets and about $119 billion in total deposits. The FDIC disclosed today that the purchase of $72 billion of the National Association's assets was part of the transaction, which included the purchase of about $72 billion of Silicon Valley Bridge Bank, at a discount of $16.5 billion.
A second hearing on Wednesday about SVB's implosion will be held by the House Financial Services Committee on Wednesday titled The Federal Regulators' Response to Recent Bank FailuresFederal Regulators' Response to Recent Bank Failures.