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The FDIC guarantees bank deposits of up to $250,000 — a figure most of us weren't thinking all that much about until a week ago, when regulators guaranteed all customer deposits, even those above a quarter-million dollars, at two failed banks.

Why it matters: Now lawmakers, academics, and some in the financial industry are debating whether the FDIC limit, which hasn't been raised since 2008, needs to be increased — or abolished altogether.

Over the weekend, four different lawmakers involved in banking said they'd consider raising the limit, CNBC reports. Last week, Maxine Waters (D-Calif.), ranking member of the House Financial Services Committee, told the New York Times that raising the limit is something Congress should contemplate, in an interview.

A coalition of midsize banks is asking the FDIC to insure all deposits for at least two years, Bloomberg reported. 

The big picture: Regulators stirred up some murkiness when they decided to protect all depositors at Silicon Valley Bank and Signature Bank, with the aim of stemming a serious systemic risk to the financial system.

On the one hand, their actions sent the message that if you deposit more than $250,000 at an important-enough bank, it's safe.

On the other hand, no one has said exactly that. The limit still exists and uninsured deposits are still uninsured.

And it's unclear what makes a bank important enough: First Republic Bank, SVB's similarly sized peer, continued to experience withdrawals of uninsured deposits after SVB's rescue. 

So we're left with confusion. "At this point, the $250,000 cap is illusory," write Lev Menand and Morgan Ricks in a piece for the Washington Post. But the fact that the official cap remains in place means that “much of the nation’s money is unsound and unstable — an ever-present sword of Damocles hanging over the U.S. economy."

Menand and Ricks argue the U.S. should scrap the limit.

Zoom out: The rationale behind the deposit limit is that everyday Americans are low-information lenders — we put our money into a bank, unsecured, without doing a deep dive into the bank's finances to make sure it's sound. Knowing that deposits are backed by the FDIC obviates the need for every person to become a bank analyst.   

But wealthier depositors, including the companies that place more than a quarter-million dollars in the bank, are supposed to be more sophisticated — and better able to handle the risk.

What happened with Silicon Valley Bank throws that whole line of reasoning out the window.

"Large depositors are both bad at monitoring banks and perfectly capable of engaging in destabilizing runs," per Menand and Ricks.

Why should all Americans care about the fate of wealthy depositors? Because their bank runs affect us, too. As we've seen this month, payrolls become imperiled and other banks start to teeter. 

The other side: Opponents have long argued that insuring all deposits would give banks too much license to take risky bets with depositor money. 

The bottom line: In stable times, deposit insurance is part of the financial wallpaper. But when the, er, bank hits the fan, everyone starts paying attention.

Why some argue it's time to raise the FDIC deposit cap

As it stands, things are murky: The cap exists, but it could be waived for banks that seem important enough

Illustration of a hundred dollar bill with a red line across it being erased by a pencil

Federal Deposit Insurance Corporation (FDIC)

Silicon Valley Bank

After a record economic expansion, the coronavirus pandemic sent the U.S. economy into a recession as unemployment soared to staggering heights. The country now faces urgent questions about how much stimulus is needed for reeling consumers and businesses, and what a recovery might look like.

Economy & Business

The world's leading central banks jointly announced new action to try to keep U.S. dollars flowing easily through the global banking system, returning to a strategy used extensively in past crises.

Driving the news: The Federal Reserve, along with the European Central Bank, Bank of England, Bank of Canada, Bank of Japan, and Swiss National Bank, with their Sunday evening (U.S. time) aimed to make dollar swap lines more readily available.

It comes after Swiss bank UBS took over its rival Credit Suisse with substantial financial guarantees from the Swiss government and its central bank earlier Sunday.

It is a sign of the severity of the risk global central banks see from the series of strains in the banking system worldwide since Silicon Valley Bank failed nine days ago.

Between the lines: In times of financial stress, global banks often become more reluctant to lend dollars to each other, creating additional tightening of global credit.

Swap lines, used extensively in the 2008 global financial crisis and again in the early days of the pandemic in 2020, allow overseas central banks to access dollars direct from the Fed, and in turn, make dollar loans to their domestic banks.

It places the Fed in a role, in effect, as a global lender of last resort.

The swap lines are now part of a standing liquidity arrangement between leading central banks, but the announcement Sunday is aimed at increasing their effectiveness by making the liquidity available daily instead of weekly.

Global central banks announce joint action to keep dollars flowing

Dollar swap lines were also used extensively in 2008 and 2020 to keep dollars flowing.

The Federal Reserve in Washington. Photo: Alex Wong/Getty Images

Federal Reserve

This Week With George Stephanopoulos-9 25 05 Am - 9 26 53 Am-2023-03-19

Sen. Elizabeth Warren (D-Mass.) called for an independent investigation into the Federal Reserve and the banking regulatory system during an appearance on ABC's "This Week" on Sunday.

Why it matters: The banking sector is poised to head into a third week of existential questions and whipsaw volatility, despite official efforts to stabilize markets and reassure depositors, Axios' Pete Gannon writes.

The fates of Silicon Valley Bank and Credit Suisse remain up in the air.

State of play: "I'm calling for an independent investigation of the Fed and the whole regulatory system here. The fed doesn't just get to do its own investigation," Warren told the program.

Warren also called on the Fed to reverse the deregulation enacted during the previous administration and to "look at these banks with much more scrutiny."

Congress should also curb the ability of the Fed to weaken regulations, she added.

The CEOs of failed banks must also be held accountable, in order to ensure that their bonuses and salaries can be clawed back and that they are banned from banking in the future, Warren added.

The senator made similar remarks during an appearance Sunday on NBC's "Meet the Press," telling the program that the "Fed doesn't just get to investigate itself."

Regarding Federal Reserve chair Jerome Powell, Warren noted that he had "two jobs."

"One is to deal with monetary policy, one is to deal with regulation. He has failed at both," she said.

The big picture: The Federal Reserve said last week that it would conduct a review of the collapse of Silicon Valley Bank — including any possible regulatory or supervisory missteps.

President Biden called on Congress last week to enact tougher penalties for executives who oversee failed banks.

deregulation enacted during the previous administration

Warren calls for investigation into the Fed amid banking turmoil

"The fed doesn't just get to do its own investigation," Warren said.

Banking

Elizabeth Warren on ABC's "This Week" discussing banking crisis.

President Biden has made the COVID-19 crisis and a post-Trump return to national unity and traditional democratic ideals his top priorities. From vaccinations to stimulus to schools, Biden is seeking bipartisan compromise while showing a willingness to use executive authority and bare Democratic majorities in the U.S. House and Senate to implement his policies. Republican leaders are navigating deep party divisions over if and how to move beyond former President Trump.

Politics & Policy

Status of Silicon Valley Bank subsidiaries

Data: Axios research; Chart: Erin Davis/Axios Visuals

As Silicon Valley Bank's saga continues, we've mapped out its various corporate entities and how they're connected. 

What to watch: We'll be updating the table above as things develop. 

Axios' full coverage of Silicon Valley Bank 

Mapping out Silicon Valley Bank's businesses

A graphic of SVB's various corporate entities, and how they're connected.

Illustration of a dollar sign made out of train line maps. 

The past 10 days have felt like an eternity, so here's a handy timeline of what's happened:  

March 8: SVB announced it has raised $500 million from General Atlantic and plans for a $1.25 billion common stock sale, plus another $500 million of depository shares.

Earlier in the day, Silvergate, a bank popular with the crypto industry, announced it's shutting down operations, a harbinger to what's to come. 

March 9: When markets opened, SVB's stock fell 30% (and eventually 60% that day and a growing number of VCs and startups started to pull their money out of the bank.

SVB CEO Greg Becker attempted to appease VCs and startups in a conference video call, asking them to "stay calm." The bank also updated Goldman Sachs on deposit outflows, effectively killing the share offering.

By the end of the day, customers had initiated $42 billion in withdrawals, making it the largest bank run in history.

March 10: U.S. regulators took control of the bank Friday morning, shutting it down.

In the evening, the FDIC informed an unknown number of SVB employees that they’d keep their jobs as part of the newly formed bridge bank for the next 45 days.

March 12: Bids to acquire SVB were due on Sunday, but there was no sale (the FDIC reportedly declined the lone bid by an unnamed company).

March 12: The U.S. government announced it would backstop all SVB deposits.

Regulators shut down Signature Bank in New York, citing systemic risk.

March 13: SVB’s U.K. arm is sold to HSBC for £1.

First Republic Bank’s stock plunges 60% as the market got jittery about a broader banking crisis. Other regional banks also saw stock drops.

SVB reopens for business as the newly set up Silicon Valley Bridge Bank.

The Fed announces a review of SVB’s failure.

March 15: Credit Suisse, who’s had its own woes for quite some time, announced it will borrow up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank to strengthen its liquidity.

March 16: Treasury Secretary Janet Yellen reassured Congress that the U.S. banking system is “sound.”

11 banks inject $30 billion of deposits into First Republic Bank as a show of confidence as it’s spent the week trying to avoid SVB’s fate.

March 17: SVB Financial Group files for Ch. 11 bankruptcy protection in the Southern District of New York.

Bids in a second attempt to sell SVB are reportedly due.

Timeline: Silicon Valley Bank's saga

So much has happened in a short period of time already.

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Startups breathed a sigh of relief Sunday night when the Federal Reserve announced it would backstop Silicon Valley Bank deposits. Yet amid anxiety about the banking sector and the future of venture capital funding, this past week has been surprisingly busy.

The big picture: Among startup-land denizens and venture capitalists who were SVB clients, there hasn't been a uniform approach about what to do since the government takeover.

Why it matters: SVB’s temporary successor, Silicon Valley Bridge Bank — helmed by CEO Tim Mayopoulos — has been on the charm offensive this week, sending emails to customers and holding video calls to answer questions.

"[P]lease keep a portion of your deposits and operating business at SVB as part of your diversification strategy. Bringing any portion of your deposits back to Silicon Valley Bridge Bank is a vote for us to succeed," the bank said in an email to customers seen by Axios. 

State of play: Startups and VCs have opted for a couple of approaches:

Move away from SVB: Others have fully pulled out their funds from SVB and moved to a bigger bank — “the scar tissue is very very deep,” says Logikcull CEO Andy Wilson.

A mix of banks: A growing group of companies are doing it all, keeping some funds in SVB (typically $250,000 or less) and putting the rest in one or more other banks.

Some are surely opting to stick with SVB, though it's unclear how popular this this approach is. 

Between the lines: While not a universal sentiment, a non-trivial portion of the startup world says SVB should survive and remain a sustainable business. This would be a good outcome for the U.S. banking system, and because SVB itself is a unique startup friendly institution. 

A group of VCs put out a support statement, advising startups to keep at least 50% of their cash at the embattled bank (as of late Friday, it still hasn't found a buyer).

The intrigue: “I miss SVB” has become a growing refrain from folks who’ve opened new accounts at other banks and noticed the differences in the customer experience.

Also, the minimum balances at other banks are posing a challenge for smaller companies looking for SVB alternatives. 

Meanwhile: A slew of fintech companies providing various services, to startups and other businesses, have stepped in to offer alternatives to SVB, and banks in general. For example: 

Brex, best known for its corporate credit cards for startups, announced over the weekend emergency credit lines for companies. It also offers various other cash management options like the ability to split funds across several banks, in FDIC-insured $250,000 chunks.

Arc, which also offers a similar slew of services and rolled out same-day payroll financing and venture debt this week, said on Wednesday that since the prior Thursday, it’s seen “15x growth in deposit volumes and 500+ applications for hundreds of millions in both short-and-long-term financing.”

Ramp, yet another fintech startup focused on business cash management, set up a referral program to direct customers to alternative banks, facilitating over $1 billion in deposits within the first 48 hours after SVB shut down.

Yes, but: These fintech companies have some limitations — namely, that they aren’t banks.

“[Banks are] always better at doing loans because they have the lowest cost of capital,” Brex CEO Henrique Dubugras tells Axios, adding that his company returned its SVB funds to the bank and even added a little more.

The bottom line: The past week has been an education in cash management for Silicon Valley. 

Navigating SVB's new era

Startups and VCs are taking various approaches to banking now.

Illustration of two piggy banks facing in opposite directions overlaid on top of a dollar bill and a rectangle. 

President Biden wants Congress to enact tougher penalties for executives who oversee failed banks.

Why it matters: Silicon Valley Bank and Signature Bank were both taken over by the FDIC in the last week — events that threatened to grow into a larger-scale banking crisis.

The banks' downfall had to do with how they managed the risk that sat on their balance sheets — risks that sat in plain sight.

What he's saying: "I'm firmly committed to accountability for those responsible for this mess," Biden said.

"No one is above the law — and strengthening accountability is an important deterrent to prevent mismanagement in the future."

"When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again."

Backstory: Silicon Valley Bank experienced a record bank run last week after a crisis of confidence among investors and depositors.

At issue: Losses in its portfolio of long-term bold holdings, which sank in value as interest rates rose rapidly.

The bank faced the prospect of selling these assets for less than what they paid for them, in order to fund withdrawals. It announced a $1.8 billion loss on one such sale last week.

Critics point out that interest-rate risk was a well-known market risk over the last few years, and say the bank should have hedged its portfolio appropriately.

Worth noting: SVB CEO Greg Becker sold $3.6 million worth of his own stock in the company in late February — an action that the Department of Justice may scrutinize.

The bottom line: Becker saw tens of millions of dollars in the value of his equity evaporate over the last year — plus, he lost his job. 

While that might be somewhat of a deterrent for other bank executives, the law itself limits the Federal government's ability to hold banking leaders accountable, as Biden noted in his remarks.

"Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing," Biden said.

Biden to Congress: Ban execs of failed banks from the industry

Silicon Valley Bank and Signature Bank were both taken over by the FDIC in the last week.

President Biden at an event in Monterey Park, Calif., on Tuesday.

President Biden at an event in Monterey Park, Calif., on Tuesday. Photo: Allen J. Schaben / Los Angeles Times via Getty Images

Joe Biden

Pro Rata

Axios Pro Rata

Silicon Valley Bank's former parent company filed for Chapter 11 bankruptcy protection on Friday, a week after the U.S. government took over its commercial bank that collapsed from a run on deposits. 

Why it matters: The filing is an effort to preserve value for the remaining businesses within the former parent company, SVB Financial Group. 

State of play: Silicon Valley Bank (SVB) was the nation's 16th largest bank by assets until it collapsed in a depositor run last week, amid fears about its interest rate risk and balance sheet strength.

The FDIC took the bank over last Friday and is now managing the business and overseeing its attempt to be sold. 

The FDIC wants a bank to purchase the whole commercial bank, and is deterring the involvement of hedge funds and other investors interested in parts of the business, sources familiar with the matter say. 

Catch up quick: SVB Financial Group said on Monday it hired advisers to pursue strategic alternatives —  including the sale of its investment arm, SVB Capital, and its broker dealer, SVB Securities.

In its press release on Friday announcing the bankruptcy, SVB Financial Group said the Chapter 11 filing does not include SVB Capital or SVB Securities.

Those entities "continue to operate in the ordinary course as SVB Financial Group proceeds with its previously announced exploration of strategic alternatives for these valuable businesses," the company said. 

SVB Financial Group also clarified that it is no longer affiliated with SVB or the private wealth business, which is part of the commercial bank. 

Zoom in: After SVB descended into receivership, Centerbridge Partners, Davidson Kempner Capital Management and Pacific Investment Management purchased bonds in the holding company and formed a creditor group, sources tell Axios. 

The group wanted the parent company to file for bankruptcy and then auction SVB Financial’s nonbank businesses, Axios has confirmed.

SVB Financial then filed Chapter 11  — but where the auction goes and who receives the proceeds remains unclear. The creditor group paid around 30 cents on the dollar for the bonds, per the Wall Street Journal. 

"It's too premature to draw any conclusions on how a bankruptcy judge might view parts of the holding company," said Nomura's Greg Hertrich. 

Hertrich, Nomura’s head of US depository strategies, said the creditor group could benefit from proceeds that come from the sale of the company's assets — or it could not. 

"The thing about bonds is that it's a commitment from a corporation, and that commitment is to repay the cost of the bond," he said. "That obviously doesn't happen 100% of the time." 

Of note: In its bankruptcy filing, SVB Financial Group said it believes it has approximately $2.2 billion of liquidity, $3.3 billion in debt, and $3.7 billion of preferred shares.

Silicon Valley Bank's former parent files for Chapter 11

The move aims to preserve value for the non-bank businesses

 Photo by Liu Guanguan/China News Service/VCG via Getty Images.

In a story in the Financial Times out Thursday, current and former Silicon Valley Bank employees cited the bank's commitment to remote work as one reason for its failure.

Why it matters: In the aftermath of the collapse of the 16th biggest bank in the country everyone is trying to understand what happened. 

Whether remote work led directly to a bank failure, or whether poorly-managed remote work was simply a sign of bigger problems at the company, we may never know. Either way, what happened at SVB will likely enter the broader debate about returning to the office.

Details: The banking industry has led the return to office charge for a while, and SVB was an outlier in its commitment to something different.

The company's career site touted its flexible culture. "If our time working remotely has taught us anything, it’s that we can trust our employees to be productive from wherever they work," the site says.

 The executive team at SVB was spread out around the country, with CEO Greg Becker at times working from Hawaii, according to the FT.

Yet, SVB included remote work as a risk to its business in its 2022 annual report — in part because of the IT issues posed when employees are dispersed around the country, but also for productivity reasons.

The FDIC, which now runs the bank, told staff they could continue working remotely — except essential workers and branch employees, per Reuters.

The big picture: Whether or not remote work succeeds in any organization depends a lot on how it's managed. 

"There are well-managed organizations that operate remotely," said Kevin Delaney, CEO of Charter, a media and research firm that works with companies on talent strategy. And some companies have abandoned remote work or hybrid work models because they weren't well-run, he said.

Best Buy, an early pioneer of hybrid work, got rid of its hybrid work policy because it had stopped training new employees on how to operate in a flexible work environment, leading to cultural issues. (Read this 2021 New Yorker piece for more on that.)     

Yahoo famously called all its employees back to the office a decade ago, when a new CEO took the helm and tried to turn that sinking ship around. 

The immediate cause of SVB's failure, as we've said before, was that the company didn't take into account the risks that a high-interest rate environment, coupled with its concentrated tech-heavy clientele, posed to its balance sheet.

Then, its public communications around a needed capital raise incited panic, which led to an unprecedented viral bank run, as Axios' Eleanor Hawkins reported.

It's certainly possible that if more executives were working in closer proximity those missteps would've been avoided. But it's hard to really know.

The bottom line: Companies looking for a reason to bring workers back to the office may find it in this piece. 

SVB employees blame remote work for bank failure

What happened at Silicon Valley Bank will likely enter the broader return-to-office debate.

Illustration of a person working at a desk in the middle of a island

Remote work

As anyone who’s ever dealt with an insurance company knows: They like to minimize the amount they have to pay out in claims. The FDIC is no normal insurance company — but its actions last weekend are entirely consistent with a desire to save as much money as possible.

Why it matters: The FDIC on Sunday decided to bail out a set of Silicon Valley millionaires and billionaires who had substantial uninsured deposits at Silicon Valley Bank. That's great for the plutocrats in question — but it also turns out to be great for everyday Americans who pay through various bank fees for the FDIC insurance fund.

How it works: As depositors across the country watched SVB depositors bewailing their putative losses, they started to worry about their own money.

Roughly half of all bank deposits are uninsured, and of those uninsured deposits, only about $1.1 trillion is housed at the giant too-big-to-fail institutions known as G-SIBs. (That stands for global systemically important banks.)

That leaves some $1.5 trillion of uninsured deposits across the country, most of which are earning an underwhelming rate of interest.

To put that number in context: A bank run of $0.04 trillion at SVB was historically unprecedented and managed to wipe out the 16th-largest bank in the country within the space of 24 hours.

Between the lines: Now that it's possible to get a 5% rate of interest just by keeping your money in Treasury bills, greed alone is enough to get Americans to move billions of dollars out of deposit accounts. If you add to that the fear that their bank might not be good for the money, the current flow of money out of low-interest accounts could overnight become a tsunami.

In his annual letter this week, BlackRock CEO Larry Fink warned of the possibility of  "more seizures and shutdowns" in a re-run of the S&L crisis of the 1980s.

By the numbers: An important new paper sketches out the possible losses to the FDIC were Americans to start panicking and transferring their uninsured deposits out of regional banks.

If half of uninsured deposits join a bank run, the authors estimate that 186 banks would fail, with close to 100% losses for uninsured depositors who didn't get their money out in time. "In other words," they write, "the decision to run would have been a rational one."

The cost to the FDIC, even paying nothing to uninsured depositors, would be at least $10 billion and almost certainly much more, given the plunge in bond prices that would accompany simultaneous forced selling from hundreds of banks trying to meet redemption requests.

Where it stands: By guaranteeing all of the uninsured deposits in SVB, the FDIC ensured that most of those depositors no longer felt any need to withdraw their money.

The total cost to the FDIC of backstopping all deposits at both SVB and Signature Bank is not yet known, but it's almost certainly going to end up being smaller than the cost to the FDIC of multiple bank runs across the country — which was the alternative.

The bottom line: If this was a bailout, it was a selfish one on the part of the FDIC. Not to mention the fact that by massively reducing the risk of simultaneous bank runs at hundreds of banks around the country, it quite possibly prevented a full-blown banking crisis.

The FDIC's long game

The FDIC's SVB move turns out to be good for everyday Americans.

Illustration of a bunch of origami dollar bills folded into  human form holding hands

The fall of SVB, and its implications for the market.

Illustration of a digitized bank building with arms shrugging

All Silicon Valley Bank stories