Silicon Valley Bank (SVB) was a major player in the US tech industry and had held the funds of hundreds of companies. It was a crucial part of Silicon Valley’s economy. However, on Friday, the bank experienced a sudden run on its deposits, causing it to become the second largest bank failure in US history. The Federal Deposit Insurance Corporation (FDIC) has taken over $175 billion in customer accounts and is now responsible for returning the money to the bank’s customers.
However, a recent regulatory filing revealed that more than 85% of the bank’s deposits were uninsured. The FDIC deposit insurance is intended for everyday bank customers and only covers up to $250,000. Therefore, most of the startups that had millions or even hundreds of millions of dollars deposited at SVB are unlikely to be covered.
This event has caused significant concern for the startups that trusted SVB with their funds. Many of these companies used the money to run their operations and pay their employees. The extent of the damage caused by the bank’s failure is still unclear, and there is currently no information on how much money is left.
This event is a stark reminder of the importance of deposit insurance and the risks associated with keeping large sums of money in uninsured accounts. The FDIC was created in 1933 in response to widespread bank failures during the Great Depression. It is an independent US government agency that provides deposit insurance to protect depositors in case of a bank failure.
The SVB case highlights the need for startups and other companies to carefully consider the risks associated with their banking options. While startups may prioritize SVB for its reputation and specialized services, it’s essential to weigh the risks associated with uninsured deposits.
