The decade's most triggering comedy
Sen. Elizabeth Warren (D-MA) and Rep. Alexandria Ocasio-Cortez (D-NY) sent letters to large depositors of collapsed financial institution Silicon Valley Bank to ask about their approaches to risk management.
The implosion of Silicon Valley Bank, where the vast majority of account balances exceeded the $250,000 threshold backed by the Federal Deposit Insurance Corporation, prompted the government-backed company to secure all accounts at the firm last month in order to prevent additional bank runs. Some $13.3 billion of the $18 billion taken from the Deposit Insurance Fund to protect Silicon Valley Bank were used to back deposits for only 10 accounts.
Warren and Ocasio-Cortez, both of whom have been critical of bank management in the weeks after the firm’s demise, contended in letters to the 14 largest depositors that Silicon Valley Bank “did not function like a normal bank” because the firm catered almost entirely to technology companies, producing an undue degree of exposure to the recently volatile sector.
The conditions enabled a handful of venture capital firms, who controlled many of the companies which held accounts at the bank, to suddenly encourage withdrawals amid signs of distress at Silicon Valley Bank.
“Congress, bank regulators, and the public are owed an explanation for the bank’s hyper-reliance on tech industry firms and investors,” the lawmakers wrote, “the extent to which this resulted in an abnormally high percentage of deposits that were not insured by FDIC, and the role that companies like yours might have played in precipitating the $42 billion single-day run.”
Reports indicated that Silicon Valley Bank maintained “white glove” treatment of some venture capital customers, provided lower-rate mortgages for startup founders, and sponsored multiple industry conferences. Silicon Valley Bank also required companies to deposit their money in exchange for venture debt agreements, then offered the deals to founders and executives.
“If the reports are accurate, these mutual backscratching arrangements could help explain why some customers placed massive, uninsured deposits,” Warren and Ocasio-Cortez continued. “And if these deposits were made by company executives and allowed by corporate boards in exchange for personal perks, that behavior raises potential concerns about whether they were meeting their fiduciary duties.”
The lawmakers asked the depositors, which included firms such as digital hardware manufacturer Roku, bankrupt cryptocurrency lender BlockFi, and gaming platform Roblox, to provide complete timelines of their relationships with Silicon Valley Bank and information about their decisions to deposit large amounts of assets with the firm.
The collapse of Silicon Valley Bank and Signature Bank, which also had a majority of depositors with account balances exceeding the $250,000 threshold, provoked calls from some officials to introduce more regulations in the financial sector. The White House recently asked lawmakers to introduce regulations that would “hold senior management accountable when their banks fail” or enter into the control of the FDIC, while House Financial Services Committee Chairman Patrick McHenry (R-NC) said that he has “confidence in our financial regulators and the protections already in place to ensure the safety and soundness of our financial system.”
Warren has suggested that the $250,000 deposit insurance limit should be re-examined. The FDIC funds deposit insurance through fees on covered banks rather than taxpayer dollars.