SVB failure to cost a sixth of total funds ensuring US deposits
Brady Knox
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The collapse of Silicon Valley Bank will take up nearly $20 billion of the Federal Deposit Insurance Corporation’s insurance fund.
The FDIC’s Deposit Insurance Fund was established when the FDIC was created in 1933 in the wake of the Great Depression. It aims to ensure the deposits of United States citizens, encouraging faith in the financial system.
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It derives its funds from insurance premiums and interest from U.S. government obligations. As of December 2022, the deposit insurance fund’s balance stood at $128.2 billion, according to Business Insider. That means cushioning the blow of SVB’s failure will require nearly a sixth of the entire insurance pool.
“The FDIC estimates the cost of the failure of Silicon Valley Bank to its Deposit Insurance Fund (DIF) to be approximately $20 billion. The exact cost will be determined when the FDIC terminates the receivership,” a Sunday statement from the FDIC said.
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“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 statement added. “Today’s transaction included the purchase of about $72 billion of Silicon Valley Bridge Bank, National Association’s assets at a discount of $16.5 billion. Approximately $90 billion in securities and other assets will remain in the receivership for disposition by the FDIC. In addition, the FDIC received equity appreciation rights in First Citizens BancShares, Inc., Raleigh, North Carolina, common stock with a potential value of up to $500 million.”
Though the cost will take a sizable chunk out of the DIF, the plan appears to be in line with the Biden administration’s promise that the federal handling of the failure will not directly cost U.S. taxpayers.