Ranked among America's best banks by Forbes, SVB collapses days after: Regulators say, only depositors to be bailed out

The US banking regulators have swung into action to resolve the collapse of Silicon Valley Bank with a particular focus on depositors.

Regulators are working through the weekend to protect the interest of the depositors and as per the new reforms the regulators aren’t looking to help investors but ensure the depositors’ needs are met, Treasury Secretary Janet Yellen said in CBS’s “Face the Nation” on Sunday.

As the repercussions of SVB’s failure are being felt, people are questioning how the tech lender managed to figure in Forbes magazine’s annual list of top banks in USA not once or twice but five times without a gap.

The latest list ranking the best banks in America was published on February 16. In the article, Forbes writes, “Forbes’ 14th annual America’s Best Banks list looks at growth, credit quality and profitability in the 12 months through September 30, 2022, to rank the 100 largest (by assets) publicly-traded banks and thrifts from best to worst.”

After the collapse of SVB, the Editor’s note inserted in the article reads: After this list was published on February 16, 2023, SVB Financial Group’s Silicon Valley Bank collapsed and was placed under FDIC control on March 10 due to a bank run prompted by fears about its interest rate exposure.

Just a few days ago, on March 6, the bank also appeared in their inaugural Financial All-Stars list.

However, this elation didn’t last long, as regulators took over the bank’s board as it failed to meet withdrawal demands from depositors.

After the news of SVB’s downfall, several people tweeted wondering how the bank failed days after featuring in Forbes' Best Banks Ranking. Several people raised questions over the puzzling contradiction.

Notably, Silicon Valley Bank's Twitter handle no longer exits.

Experts believe that the bank's collapse was mainly due to management failures rather than indicating larger problems in the financial services industry. The bank had invested a significant portion of its deposits in long-term treasury bonds, and the bank faced mounting pressures due to higher interest rates, declining tech stocks, and layoffs within the industry, according to reports in the media.

Media reports further said that the Federal Deposit Insurance Corp. (FDIC) and the Federal Reserve are considering the establishment of a fund that would enable regulators to provide support for additional bank deposits in the event of difficulties, after the collapse of Silicon Valley Bank. The reports stated citing sources that discussions about the new special vehicle took place between regulators and banking executives.

Due to the bank's inability to meet withdrawal demands, there was a run on the bank, prompting the California Department of Financial Protection and Innovation (DFPI) to take control of the bank's operations once it became insolvent.

The FDIC now holds the bank's assets and will start reimbursing insured deposits for Silicon Valley Bank customers on Monday. Although the FDIC provides insurance coverage for deposits of up to $250,000, most of the funds kept at SVB exceeded that amount. The FDIC has announced that all protected deposits will be accessible on Monday, according to media.

Before it failed, Silicon Valley Bank was the 16th largest lender in the US, and its collapse has had a severe impact on the tech industry since it was a significant financier of tech startups. Many businesses, including Camp and Compass Coffee, have been affected by the shutdown, and they have reported not being able to access their deposits, according to media.

Silicon Valley Bank is the first FDIC-insured organization to experience failure this year. Before this, on October 23, 2020, FDIC-insured Almena State Bank in Almena, Kansas was shut.

The Silicon Valley Bank’s bankruptcy is a significant event, as it is the largest bank failure since Washington Mutual in 2008 and the second-largest in U.S. history.

The start-up industry, in which Silicon Valley Bank had a significant role, was noticeably affected by the Federal Reserve's aggressive interest rate increases in the past year. The bank's ability to fulfill withdrawal requests was impeded by the high-interest rates, which had restricted financial circumstances.

Moreover, due to the Fed's rate increases, the bank incurred a $1.8 billion loss on Treasury bonds that had depreciated.