The California Department of Financial Protection and Innovation released a report outlining primary factors in the Silicon Valley Bank collapse and the measures they plan to take to prevent further bank failures.
05/19/2023 6:00 A.M.
2 minute read
California’s Department of Financial Protection and Innovation (DFPI) recently admitted its role in the Silicon Valley Bank (SVB) collapse, citing social media and mobile banking as primary factors in the regional bank’s March 10 failure, according to a recent article from the Los Angeles Times.
“While many internal factors made Silicon Valley Bank susceptible to a bank run, both social media and digital banking technology accelerated the volume and speed of the deposit outflows,” according to a DFPI report.
Following the bank’s closure, the DFPI took possession of SVB.
In addition to identifying those two factors, the report noted that SVB had enough liquidity before it went under to handle $16 billion in withdrawals in a single day, which was almost as much as the $16.7 billion withdrawn from Washington Mutual over the course of 10 days in 2008 before it went under. But over the course of eight hours on March 9, Silicon Valley Bank received requests to remove $42 billion in deposits, according to the report.
The report also outlined the department’s plans to “discuss with bank management what kind of social media monitoring a bank is conducting and how the bank intends to confront reputational and public relations concerns in the digital age” and provide training to its bank examiners to better assess those risks.
According to the article, the bank faced extraordinary risk since the majority of its deposits were heavily based in the tech industry, and 93.8% were totaling $151.6 billion while uninsured—the greatest percentage of any major U.S. bank. Deposits up to $250,000 are currently insured by the Federal Deposit Insurance Corporation (FDIC). However, the FDIC declared it would guarantee all of the bank’s deposits three days after the failure amid worries that it would spark a widespread bank panic.
The DFPI identified a number of actions it plans to take to prevent further bank collapses, including to:
- Coordinate better with federal regulators;
- Ensure more personnel are assigned in a timely manner to fast-growing banks with assets of more than $50 billion; and
- Closely monitor the level of uninsured deposits.