March 18, 2023
The New York Times seems to think it is a newspaper’s job to promote bank panics wherever possible. It would be difficult to explain its reporting on the Silicon Valley Bank’s (SVB) collapse any other way.
Last week it ran a piece implying that Silicon Valley’s tech sector was going to be seriously crippled by the collapse of the bank. The crippling would occur both, because they would lose a large chunk of their assets, which were in uninsured accounts at SVB, and also because they would lose access to a bank which was a major source of credit.
The first point was not plausibly true even at the time the NYT posted the story. When it seized the bank a week ago Friday, the FDIC issued a notice that it would give depositors an advance payment against the uninsured funds in their account the next week. It also said that it would give them a certificate for the remaining funds, the value of which would depend on how much it was able to collect by selling the bank’s assets.
The advance payment would almost certainly have been an amount equal to at least 50 percent of the uninsured deposits and quite possibly over 70 percent. The certificate would cover some fraction of the remaining amount.
While the depositors would have to wait for the FDIC to complete its resolution process to know how much they would ultimately get from their certificates, they would almost certainly be able to sell them to investors the day they were issued. This would likely mean a loss to these depositors, but we are almost certainly talking about less than 15 percent, and quite likely something close 5.0 percent. (The bonds of the bank were still selling for 30 cents on the dollar after the FDIC seizure was announced. No bond holder will collect a penny on their bonds, unless the depositors are paid in full.)
In short, the idea that Silicon Valley businesses would see their accounts zeroed out was always nonsense. Losing 5-15 percent of holdings above $250k would surely be a blow, but it is hard to believe this would devastate an otherwise thriving business.
On the second point, while other banks may not give quite the same service to Silicon Valley business people as SVB, banks are generally happy to make loans to thriving businesses. Also, part of the loss is personal to these people, not about their businesses.
“SVB’s home loans were significantly better than those from traditional banks, four people who received them said. The loans were $2.5 million to $6 million, with interest rates under 2.6 percent. Other banks had turned them down or, when given quotes for interest rates, offered over 3 percent, the people said.”
Anyhow, in a follow up today, the NYT gave us the timeline for Sara Mauskopf, a small business owner who had an account at SVB. The timeline goes over her experiences from first hearing about the bank’s troubles through the announcement on Sunday afternoon that everyone would have immediate access to the full amount in their accounts.
Incredibly, the piece never once mentions the FDIC’s statement when it took over the bank, that it would issue an advance payment within days and a certificate for the rest of the money. It is possible that Ms. Mauskopf did not know about this statement and the promise that most of the funds in her account would be available almost immediately.
If that is true, that would be a great story for a serious news outlet to pursue. Was Ms. Mauskopf typical among SVB depositors in not knowing that most of her account would be available to her the week after the bank had been seized?
If so, why were depositors not better informed about this fact? It could be because news outlets like the New York Times were more interested in promoting panic than in providing information, but that would just be speculation.