The bailouts of Silicon Valley Bank and Signature Bank have introduced a new concept to bank regulation: Too Midsize to Fail.
These are, we’re told, the second- and third-largest bank failures in history, but that doesn’t make them big banks. Silicon Valley Bank had $209 billion in assets. That’s a rounding error at J.P. Morgan Chase, the largest bank in America, which has $3.3 trillion in assets. The largest bank failure in history (Washington Mutual in 2008, later absorbed into J.P. Morgan Chase) carried a nominal price tag of $307 billion, which in today’s dollars is $435 billion. That’s more than twice the assets of Silicon Valley Bank and three times the assets of Signature Bank. If banks were cups of latte at Starbucks, Silicon Valley and Signature would be tall, not venti or even grande.
“All customers who had deposits in these banks,” President Biden said Monday morning, “can rest assured they’ll be protected and they’ll have access to their money as of today. That includes small businesses across the country that bank there and need to make payroll, pay their bills, and stay open for business.”
The customers in question have two notable characteristics. They are (at least some of them) not all that small and (at least to this layperson) not all that bright.
At Silicon Valley Bank, the biggest known customer is Roku, makers of those little black boxes that let you binge-watch The White Lotus and various movies that, sadly, nobody wants to watch anymore in a movie theater (including Everything Everywhere All at Once, which just won the Oscar for best picture). Roku has a market capitalization of $8.4 billion and, after laying off 7 percent of its workforce in November, has about 3,000 employees. That makes it not a small business but a midsize one—perhaps a grande but definitely not a venti at Starbucks.
Roku makes a nifty product, but it was dumb to put one-quarter of its cash reserves (about $487 million) into Silicon Valley Bank when only $250,000 of that was insured by the Federal Deposit Insurance Corporation, or FDIC. Looking down a list of known depositors, the only one with any brains would appear to be the video-sharing platform Vimeo (market cap: $562 million; about 1,100 employees after laying off 11 percent of the staff in December), which kept its deposits at Silicon Valley below $250,000, same as you or I would do if we had more than that amount lying around the house.
We don’t yet know who the biggest depositor at Signature Bank was, but in the past its customers have included Donald Trump (to whom it lent money long after most banks knew not to) and Charles and Jared Kushner, and in 2011 Signature put Ivanka Trump on its board. It doesn’t speak well for the management’s intelligence that it was doing business with Trumpworld as late as 2015 (or that one of its founders, Scott Shay, describes himself online as a “thought leader”). Even more damning is that Signature went big into cryptocurrency starting in 2018. At the time it went bust, more than 20 percent of Signature’s deposits were crypto assets. You have to wonder about the savvy of a bank that followed investment advice dished out in Super Bowl commercials.
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