The California Department of Financial Protection and Innovation closed Silicon Valley Bank this morning. That agency is the State of California's primary financial regulator and they appointed the Federal Deposit Insurance Corporation (FDIC) as receiver
for the bank's assets. This is a noteworthy event I expect will dominate headlines over the next few weeks so I wanted to provide some insight and good sources of information for you to cut through the media's noise.
First, I have confirmed that PBL Wealth
Management's client portfolios have zero direct exposure to Silicon Valley Bank's bonds or their Certificates of Deposit. We have always maintained high quality standards for any bonds or other interest earning securities purchased for client portfolios. We do this to mitigate the risks of clients experiencing a default in their bond holdings.
Second, while this event is having an impact on the stock price of many large banks in the US financial system this week, regulators are not anticipating a cascade effect wherein we see widespread bank failures or other existential impacts to the financial system from this one event. Silicon Valley Bank is a regional bank that focused its client base on cryptocurrency investors, technology startups and
technology-focused venture capital firms. The US has implemented multiple changes since the 2008 financial crisis in the way banks are regulated, stress tested and reserves are maintained. As a result, our financial system is in a much stronger position today to respond to this type of event.
Third, this is a living example of why the FDIC plays an important role in the stability of our financial system. Deposits at FDIC-insured institutions are insured up to $250,000 per registration and the FDIC has made it clear those depositors' funds will be available to them on Monday morning. Depositors with balances above that limit have been issued receivership certificates for their excess balances and are likely to recover their
additional funds over the coming months as the FDIC oversees the orderly wind down of the bank.
Though it is undoubtedly an inconvenience to those affected, depositors under the insured limits suffered no loss of their capital and will be able to
continue their normal banking activities Monday morning. Those above the insured limits are likely to recover most, if not all, of their funds as the bonds in the bank's portfolio mature over the coming years. This is a case study on the strength of our financial system and an opportunity to see the regulatory and consumer protection process working effectively.
It is important to note that bank failures are not entirely uncommon even though Silicon Valley Bank is the first FDIC-insured bank to go into FDIC receivership in two years. It is also receiving extra media attention due to its name recognition and prominent role in the technology startup space which is a perpetual media darling. The last bank to fail was Almena
State Bank in Almena, Kansas in October 2020. To my knowledge, that story didn't make the front page of the Wall Street Journal.
