On September 25, 2008, Washington Mutual Bank was taken over by the federal government and put into receivership by the Federal Deposit Insurance Corp (FDIC). There had been a run on the bank. Account holders withdrew $16.7 billion in deposits over nine days. The mortgage crisis creating the Great Recession was upon us.
Eventually, JPMorgan Chase bought Washington Mutual. This was the largest bank failure in U.S. history.
The FDIC estimates over $40 billion (20% of their deposits) were withdrawn from Silicon Valley Bank (SVB) on Thursday, March 9. On Friday, March 10, 2023, the FDIC took over SVB at 9:00 AM. Usually, regulators take over at the close of business.
Start up and tech companies exceeded the FDIC limits – keeping millions in their accounts. As most of you have read, the majority of the deposits at SVB exceeded the FDIC limit of $250,000 exacerbating the run.
The public waking up to FDIC limits started runs at other banks such as First Republic and PacWest Bancorp to name a couple.
The dichotomy here is an individual or company wants their money but in order for the bank to stay solvent, the money needs to stay in the bank. Do you remember the movie with Jimmy Stewart, “It’s a Wonderful Life”? People took money out of the bank and he didn’t have enough to cover the withdrawals – the classic run on the bank. Another example – the movie Mary Poppins. In fact, you can see a snip of the bank run on YouTube.
In the case of SVB, word of difficulty went through social media like wildfire. House Financial Services Chair Patrick McHenry described it as “the first Twitter-fueled bank run.”
Ben Thompson, an analyst of the tech industry wrote, “It was the speed, fueled by zero distribution costs for both rumors and withdrawals that was so destabilizing.”
This is not to say SVB didn’t have problems. They did. But the resolution might have been more orderly. First Citizens Bank has purchased the deposits and loans of SVB. First Citizens also purchased some banks during the 2008 crisis. They seem to be old hands at this.
We aren’t experts in this area but it seems to be a step in the right direction.