Well, it actually happened. The FDIC was given control of Silicon Valley Bank on Friday in what could have been an ‘extinction level’ event for US (small) tech. Thankfully, the US government stepped in to guarantee all deposits. Meanwhile, SVB’s risk governance has made Credit Suisse look like a responsible adult (although CS shares are at an all-time low).

Today’s newsletter is an SVB special.

The lowdown (on SVB)

• 🇺🇸 US government steps in to guarantee all SVB deposits with funds available as of Monday.

• 🇬🇧 HSBC to acquire the UK subsidiary of SVB for £1.

• 💀 New York-based Signature Bank becomes second casualty of banking sector turmoil.

• 🏝️ Distressed debt funds were offering to buy startup deposits stranded at SVB for 60-80 cents on the dollar.

• 💰 SVB paid bonuses to employees hours before the FDIC took over.

Flex your finance muscle

The FDIC

The Federal Deposit Insurance Corporation (FDIC) is a US government agency that provides insurance for deposits in banks and savings associations. It was created in 1933 in response to the wave of bank failures during the Great Depression, with the goal of restoring confidence in the banking system.

The FDIC insures deposits up to $250,000 per depositor per insured bank. This means that, if a bank were to fail, depositors would be able to recover their insured funds up to the insured amount, even if the bank is unable to return their deposits.

The FDIC is also tasked with supervising banks to ensure their soundness, and works to promote financial stability by identifying and addressing emerging risks in the banking industry. I’m not sure it can be given full marks for this part of its role.

Read more here.

Featured stories

WTF happened at SVB?

SVB was the banker to the tech industry. While valuations were high and VC money abundant, the bank was awash with deposits – more deposits than it was able to loan out. As banks earn money on the spread between the rate it pays depositors and the rate it earns on loaning deposits, SVB had to find another way to put the money to work.

It bought mortgage-backed securities (MBSs) with a 10-year maturity date, creating a duration mismatch – the deposits held by SVB were immediately callable by depositors whereas the MBSs were tied up for 10 years. When interest rates increased substantially and quickly, SVB was caught out and incurred large unrealized losses on its MBSs. 

This was not immediately problematic; the turmoil came when depositors, encouraged by VCs in some cases ($), requested that deposits be returned. To pay out these deposits, SVB would be forced to realize losses on its MBSs. The bank's liabilities (deposits) now exceeded its assets (loans made and MBSs) and regulators stepped in, eventually guaranteeing deposits. And that was the end of SVB.

(There may also have been issues with SVB’s portfolio of venture debt ($))

The content we're consuming today

• All-In podcast: Silicon Valley Bank implodes: startup extinction event, contagion risk, culpability and more.

• WSJ on YouTube: Rihanna's Wealth: Breaking Down Her $1.4 Billion Business Empire.

• WSJ: Elon Musk Is Planning a Texas Utopia—His Own Town ($).

Off-balance sheet items

• In case SVB didn’t provide enough drama for you this weekend (we doubt that), here is the full list of the winners of the Academy Awards for 2023. (Also, I’m thinking Jason Statham to play SVB CEO Greg Becker when the movie is made about all this.)

The bottom line