UPDATE: U.S. regulators step in to protect all deposits at failed Silicon Valley Bank

UPDATED: Sunday, March 12 at 6 pm CT

The Federal Reserve, Treasury Department and Federal Deposit Insurance Corp. announced Sunday that all depositors at failed Silicon Valley Bank will have access to all their money, a move intended to avert a financial crisis.

"After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13," the Treasury Department announced in a statement. "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."

Regulators announced that New York-based Signature Bank had also failed and was being seized on Sunday. At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history, the Associated Press reported.

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed, the Treasury Department said. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Separately, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.

Venture capital investors expressed relief via social media following the news.

"Relieved that FDIC has protected deposits. Continuity for thousands of companies & paychecks for millions, at 0 taxpayer cost. Must figure out how the critical services SVB provided for tech/vc thrive in SVB/successor. Proud of industry collaboration to catalyze this outcome," General Catalyst CEO Hemant Taneja tweeted Sunday.

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UPDATED: Friday, March 10 at 11 pm CT

In what’s being described as one of the largest bank failures since the global financial crisis of 2008, the FDIC announced Friday that it was shutting down Silicon Valley Bank and will be in charge when the bank reopens on Monday.

SVB was a major investor in health tech, digital health and biotech companies and for startups and investors. According to data on its own website, SVB says it banks nearly half of all U.S. venture-backed startups, and 44% of the U.S. venture-backed technology and healthcare companies that went public in 2022 are SVB clients. 

Nearly half of all U.S. venture-backed technology and life science companies bank with SVB—the 16th largest bank in the country—with a total of $342 billion in client funds and $74 billion in total loans.

Silicon Valley Bank was also a bank to more than 2,500 venture capital firms, including Lightspeed, Bain Capital and Insight Partners, the New York Times reported.

SVB is a major investor in the technology space and has backed rounds for a slew of health tech and digital health companies including Carrot, Nomad, Olive, Komodo, DispatchHealth, Paytient and Digital Assent, as Fierce Healthcare previously reported.

Startups who banked with SVB are waiting to find out when deposits and financing will be returned and it raises questions about their ability to make payroll in the coming week.

SVB's recent shut down by the California Department of Financial Protection and Innovation and the subsequent appointment of the FDIC as receiver cause a ripple effect through the venture capital and technology ecosystem, according to attorneys at Foley Hoag, a law firm specializes in healthcare, digital health and life sciences.

In a blog post on Friday, Foley Hoag advised that if a company’s payroll account is held at SVB, the company’s ability to make timely payroll may be impaired. "Many state and local labor laws and regulations impose strict standards on payment of payroll and may require consideration of furloughs or reductions to avoid violations of unpaid wages, minimum wage and other applicable laws," Foley Hoag attorneys wrote.

RELATED: SVB capital crunch sends biotechs on bank run

"For the short term, SVB will be unable to fund its commitments to extend future credit or to perform its counterparty obligations under swaps and other hedging instruments," Foley Hoag attorneys wrote in its advisory. "In the event SVB is acquired by another bank, the successor bank may assume such obligations, but no assurance can be provided at this stage."

Companies may need to seek short-term or bridge funding to meet existing obligations, the attorneys wrote. Companies with secured financing will need to review their financing documents in order to determine how best to access future liquidity, according to attorneys.

Ashley Tyrner, CEO of food-as-medicine startup FarmboxRx, told the New York Times that the SVB collapse is now tying up cash totaling eight figures for her company, which delivers food to Medicare and Medicaid participants.

Rock Health founder and capital partner Bill Evans said Rock Health and other VC firms are "standing ready" to help their portfolio companies with financing to get through what might a liquidity crunch as a result of what happened to SVB.

"You don’t want a company to fail because a bank account got locked for a period of time," Evans told Fierce Healthcare in an interview Friday. "That's a fundamental tenant of this business. VCs manage difficult-to-manage risk. We wouldn't be good at our job if we didn’t step up to mange these risks."

A handful of VC firms, including General Catalyst, B Capital, Greylock Partners, Khosla Ventures, Kleiner Perkins, Lightspeed Venture Partners and Redpoint Ventures, among others, met Friday to discuss the impact of SVB's downfall. In a joint statement, the VC firms said SVB has been a "trusted and long-time partner to the venture capital industry and our founders."

"The events that unfolded in the past 48 hours have been deeply disappointing and concerning," the VC firms said, according to a tweet from General Catalyst CEO Hemant Taneja. "In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them." 

At least one VC firm has committed to backstop its portfolio in making payroll, Forbes reported Friday. Lowercarbon Capital partner Clay Dumas wrote the climate-focused firm’s CEOs and committed to “directly front” the cash needed for its startups, according to the email, Forbes reported.

The FDIC said in a statement that “all insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds."

"As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors," the agency said.

The news sparked a bank run, slashing 60% of SVB's market value.

One digital health company, Hims & Hers, took steps Friday to communicate that it was not materially impacted by Silicon Valley Bank's closure. "The company has limited cash exposure resulting from the liquidity concerns at SVB. The vast majority of the company’s cash and short-term investments are held via third-party custodians other than SVB. Additionally, the company does not have any debts or current lines of credit directly impacted by these events," Hims & Hers said in a press release.

The FDIC said it immediately transferred all insured deposits at SVB into the Deposit Insurance National Bank of Santa Clara (DINB). SVB has 17 branches in California and Massachusetts, and they, along with the main office, will reopen on Monday, but under the stewardship of DINB.

“Banking activities will resume no later than Monday, March 13, including on-line banking and other services,” the FDIC said. “Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.”

SVB had about $209 billion in total assets and about $174 billion in total deposits as of Dec. 31, 2022.

“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined,” the FDIC said. “The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.”

During the SXSW 2023 conference in Austin, Texas, 23andMe co-founder and CEO Anne Wojcicki responded to the evolving SVB situation.

"We don’t have any exposure there but I remember living through Lehman Brothers and the market collapse in 2000. This is the third time around seeing this," she said. "It's unfortunate how it can take down companies. We are living in a time when companies need to be fiscally responsible and mindful of how they are using their cash. Investors are not interested in money-losing businesses."

Arjun Goyal, M.D., Vida Ventures co-founder and managing director, told Fierce Biotech he’s suggesting that companies he advises take a close look at their SVB exposure and consider transferring that exposure to other banks. Exposure measures the most a lender can lose if a borrower defaults on payments.

There are now concerns about the downstream effects of the SVB collapse. Regional and midsized bank stocks fell sharply on Friday. First Republic shares fell 52% in early trading before storming back to near the previous day’s closing level, only to then finish the day down 15%, the Wall Street Journal reported. Signature Bank share also slid.