Silicon Valley Bank's collapse — the second largest bank failure in U.S. history — reverberated across the country, including in Minnesota.
Companies and venture funds with ties to the bank hustled to make sure their money was safe, while consumers tried to figure out what, if anything, it could mean for them.
Silicon Valley Bank — which worked mostly with venture capitalists, startups and other technology firms — failed at the end of last week as customers began pulling out their money. Federal regulators shut it down Friday.
Scott Coleman, a Minneapolis-based partner in Ballard Spahr's banking and financial services team, said people should not panic.
"If you look back at the last financial crisis when there were over 500 bank failures, in the overwhelming majority of the cases, the uninsured depositors did not incur a loss," he said.
President Joe Biden on Monday also sought to reassure Americans the financial system is safe as U.S. regulators have stepped in to shore it up.
Biden's comments came after the Federal Reserve, Treasury Department and Federal Deposit Insurance Corp. on Sunday rushed in to help avoid a wider fallout, announcing they would guarantee all of its deposits, as well as those at Signature Bank, which also was forced to close this past weekend. That means that all customers had full access to their money starting Monday.
"The significance of the steps taken by the Fed, FDIC and Treasury last night are that you don't have to worry about the safety of your bank accounts," said Greg McBride, chief financial analyst at Bankrate.com. "Your money is safe and available, whether you're at a bank or at a credit union, whether it's within federal deposit insurance limits or whether you exceed federal deposit insurance limits."
Despite the federal government's moves to quell fears, investors were still jittery about a possible ripple effect in the wider banking system. Bank stocks, including those of Minnesota-based companies, sank Monday morning after markets opened.
Shares of Minneapolis-based U.S. Bancorp ended the day down 10% and St. Louis Park-based Bridgewater Bancshares' declined 7%.
Meanwhile, Huntington Bancshares' shares plummeted 17%, and Wells Fargo was down 7%.
Analysts are watching small regional banks with large uninsured deposits in particular as they are thought to be more vulnerable, particularly in today's higher interest rate environment.
But George Singer — a Twin Cities partner at Holland & Hart, which specializes in corporate finance, bankruptcy and mergers and acquisitions — noted Silicon Valley Bank and Signature Bank both had different portfolios than most other banks.
"One was more into bitcoin. The other one was into tech," he said. "They had loan concentrations that were different. ... There are a lot of regional banks that are well diversified."
Here's some answers we know right now.
What does this mean for local companies, many of them startups, with money in the collapsed banks?
Some Twin Cities-based startups, such as Soona, that had deposits with Silicon Valley Bank sighed with relief Monday when they were able to access their funds.
David Reiling, CEO of St. Paul-based Sunrise Banks, said his bank has already fielded some inquiries from fintech businesses that had money in Silicon Valley Bank and are looking for places to move it.
Meanwhile, several publicly held, Minnesota-based technology and med-tech companies issued statements assuring investors they had no connection with Silicon Valley Bank, including Baudette-based ANI Pharmaceuticals, Plymouth-based DiaMedica Therapeutics and Eden Prairie-based NeuroOne Medical Technologies.
New Brighton-based Cardiovascular Systems does have an operating account with SVB, but a company spokesman said their overall exposure to SVB is minimal.
What does FDIC-insured mean? What does it cover?
FDIC insurance covers traditional deposit accounts, and depositors do not need to apply for it. Accounts are covered up to $250,000, including checking accounts, savings accounts, money market accounts and certificates of deposit.
Most online banks are also FDIC-insured. Customers can double check with their bank to confirm this.
In the case of Silicon Valley Bank, accounts of more than $250,000 were initially vulnerable when it had to shut down, making some companies worried they wouldn't be able to make payroll. But that issue is now resolved as federal regulators have guaranteed all depositors will be able to access their funds.
What to do if you're worried about your bank accounts?
"You don't have to do anything out of safety concerns," McBride said. "If you want to move money because you can get a better interest rate, go for it. But I would have said that last week."
While not urgent, McBride suggests evaluating savings and other accounts if concerned about whether they're FDIC insured to seek alternatives since the extended federal protection as of Sunday might not stay in place for the longer term.
Coleman also added that individuals and businesses can spread out their deposits among multiple financial institutions; use sweep accounts that automatically transfer to money market mutual funds or treasuries held in their name; and monitor the financial conditions of the places where they bank.
Silicon Valley Bank failed because a lot of depositors attempted to withdraw their money in a relatively short period of time, he said, and it did not have enough liquid assets to meet the demand.
"Most financial institutions are prepared for that and have a balance sheet that would be sufficient to enable them to meet those demands," McBride said, adding that regulators also keep a close watch on this. "From a capital perspective, and this is certainly true in the Twin Cities, the banks are very strong."
What about retirement accounts? How are they impacted?
FDIC deposit insurance extends to some retirement accounts in which plan participants have the right to direct how to invest the money. But it depends where that money goes.
"If you have an IRA, but you're investing in stocks, you're not protected from investment loss," McBride said.
Includes reporting from Star Tribune wire services.
