The first lawsuits over the demise of Silicon Valley Bank (SVB) were filed as early as Monday, Mar. 13. 

The Associated Press reports that the lawsuit is against the banks’ holding company, SVB Financial Group, and its CEO Greg Becker and CFO Daniel Beck. The suit claims some quarterly and annual financial reports from SVB didn’t fully account for warnings from the Federal Reserve about interest rate hikes, the AP said. That has been the main accusation against SVB: that the banks’ directors made faulty financial decisions that put the bank in jeopardy.

SVB’s demise began on Wednesday, Mar. 8, when the bank announced that because it was short on cash, it planned to sell its long-term U.S. government bonds at a $1.8 billion loss. But it expected to regain financial health by raising $2.25 billion by issuing new common and convertible preferred shares. 

SVB depositors had little faith that the bank could succeed with this plan and began withdrawing their deposits immediately. Shareholders also lost confidence in the company, and stock in SVB Financial Group fell first 60% on Thursday and another 60% in premarket trading on Friday, Mar. 10, before activity was halted.

After depositors at New York-based Signature Bank also began withdrawing funds from their accounts on March 10, leading to Signature Bank being ordered to close by the New York State Department of Financial Services on March 12, venture capitalists and financial investors pressured the federal government to do something to help ease the worries on Wall Street. President Biden addressed the collapse by stating that he would ask Congress and banking regulators to strengthen the rules for banks and make it less likely for this kind of bank failure to happen again.

“First, all customers who had deposits in these banks can rest assured…they’ll be protected, and they’ll have access to their money as of today,” Biden declared on Monday morning. “That includes small businesses across the country that banked there and need to make payroll, pay their bills, and stay open for business.

“No losses will be…borne by the taxpayers. Let me repeat that: No losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund.”

The FDIC has announced that it will insure all deposits at both Signature Bank and SVB, including losses totaling more than the customary $250,000. “Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law,” the FDIC said in a statement.
The takeovers of Signature Bank and SVB are the two largest bank failures in the U.S. since the last major financial crisis, when Washington Mutual Bank was taken into receivership by federal regulators on Sept. 26, 2008. The closing of Washington Mutual still serves as the largest bank failure in U.S. history.

Regional banks like First Republic and Pacwest Bancorp also initially saw a share selloff as confidence waned in the ability of smaller banks to withstand current economic challenges. But the National Bankers Association, the nation’s leading trade association for the country’s minority depository institutions (MDIs), issued a statement urging banking customers to recognize that many different banking services are available, and banks use varied financial instruments to stay operational. 

“In light of recent industry events, the National Bankers Association wants to assure consumers that your money is safe with minority banks,” said Nicole Elam, president and CEO of the National Bankers Association. “Minority depository institutions are very different from both SVB and Signature Bank, which had high concentrations in crypto deposits and volatile venture capital. Minority banks are not exposed to riskier asset classes and have the capital and strong liquidity to best serve consumers and small businesses. If you’re looking for a place to bring your deposits and have greater impact, bring your deposits to minority banks.”

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