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Several weeks after the bankruptcy of Silicon Valley Bank (SVB Bank) was learned, the president of the Federal Deposit Insurance Corporation (FDIC) warned that the bailout It will cost an estimated $20 billion..
In a hearing before the United States Congress on the bankruptcy of SVB Bank and in the face of a possible financial crisis, the president of the FDIC, Martin Gruenberg, explained that of the total, at least $18,000 million dollars correspond to uninsured deposits.
At the hearing, which also featured Federal Reserve Vice President of Supervision Michael Barr and Under Secretary of the Treasury for Domestic Finance Nellie Liang, Gruenberg also discussed the cost of closing Signature Bank.
In this regard, the president of the FDIC announced that this operation will have an estimated cost of $2.5 billionof which $1,600 correspond to uninsured deposits.
“I would emphasize that these estimates are subject to significant uncertainty and are likely to change, based on the final value obtained from each receivership,” Gruenberg added in written testimony sent to Congress before the appearance, according to a report from CBSNews.
SVB Bank bankruptcy is “textbook”
The bankruptcy of SVB Bank has begun to leave its first lessons and one of these was that its closure was related to mismanagement of problems that were warned by the Federal Reserve (Fed) since November 2021.
This was stated by the Vice President of Supervision of the Fed, Michael Barr, who described the collapse as a “textbook case” in which a series of factors were added that triggered the bankruptcy.
Barr listed, among others, the concentrated business model of SVB Bank, with its largest involvement with customers in the technology sector and risk capital, as one of the most relevant factors in bankruptcy.
“SVB failed because the bank management you did not effectively manage your interest rate and liquidity risk, and the bank then suffered a devastating and unexpected run by its uninsured depositors in a period of less than 24 hours,” Barr said.
It added that the bank grew “extremely” fast, which led to tripling the size of its assets between 2019 and 2022; however, the institution did not take the time to develop “risk measurement tools, models and metrics of effective interest rate”, added the official of the Fed.
The Fed is working on a report on the financial bankruptcy of SVB Bank and Signature Bank, which will be presented on May 1.
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