Covering collapse of SVB could cost $20 billion, FDIC chairman to tell Congress

The Federal Deposit Insurance Corporation (FDIC) estimates the cost to the Deposit Insurance Fund to cover the collapse of Silicon Valley Bank is $20 billion — including $18 billion to cover uninsured deposits, according to the chairman of the FDIC, Martin Gruenberg. And the failure of Signature Bank is likely to require about $2.5 billion, including $1.6 billion to cover its uninsured deposits. 

“I would emphasize that these estimates are subject to significant uncertainty and are likely to change, depending on the ultimate value realized from each receivership,” Gruenberg, whose agency was appointed to manage both banks after their collapse, is expected to tell lawmakers Tuesday when he testifies before the Senate Banking Committee. 

Gruenberg and top officials from the Federal Reserve and Treasury Department are set to testify before the committee about the failures of the two banks and will attempt to reassure lawmakers that the banking system remains sound, and mismanagement is to blame for the second greatest bank failure in U.S. history.

“SVB failed because the bank’s management did not effectively manage its 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,” Federal Reserve Vice Chair of Supervision Michael Barr will tell senators according to his prepared remarks about the bank, which collapsed on Mar. 10. He is also expected to say the bank waited too long to address its problems. 

Barr is leading the Federal Reserve’s review of the two bank failures. That report will be released May 1. In his remarks, Barr notes that the Federal Reserve was fully responsible for the federal supervision and regulation of the bank, and the Fed’s review will examine both the growth and management of Silicon Valley Bank, as well as the Fed’s engagement with the bank and regulatory requirements that applied to the bank.

“SVB’s failure demands a thorough review of what happened, including the Federal Reserve’s oversight of the bank,” Barr will say. “I am committed to ensuring that the Federal Reserve fully accounts for any supervisory or regulatory failings, and that we fully address what went wrong.”

The sale of each of the FDIC managed bridge banks has been completed; a large portion of Signature Bank was sold to Flagstar Bank, and SVB has been sold to First Citizens Bank.

The FDIC has already started its own investigation into who should be held accountable in the wake of the failures. According to his prepared remarks, Gruenberg is expected to tell lawmakers that the FDIC will review the deposit insurance system, and will release its report at the same time as the Fed issues its report, on May 1. 

As fears spread about the solvency of the banking system, the Treasury Department, Federal Reserve and FDIC announced on Mar. 12 that the FDIC would be able to guarantee all deposits at both Silicon Valley Bank and Signature Bank beyond its stated limit of $250,000. 

The losses to the Deposit Insurance Fund will have to be recovered through special assessments on banks. The FDIC aims to issue more information on those assessments related to the failures of Signature Bank and Silicon Valley Bank, taking into account input from the public comment process in May.

Despite the recent failures, Gruenberg will also argue that the U.S. banking system remains sound.