The government takeover and subsequent acquisition of Washington Mutual in 2008 could serve as a potential blueprint for the future of Silicon Valley Bank.
The meltdown of SVB this week will go down as one of the biggest bank failures in U.S. history, with huge implications for tech startups. Its collapse ranks second only to Seattle-based Washington Mutual back in 2008 during the global financial crisis.
Both companies were placed into receivership by the Federal Deposit Insurance Corporation. The regulator sold most of Washington Mutual’s banking assets to JPMorgan Chase for $1.9 billion, protecting Washington Mutual’s depositors.
That same scenario could play out this weekend as the FDIC tries to find a buyer for SVB — and help thousands of tech companies access cash to pay bills and their workers.
“Finding a single buyer would make the sale happen quickly, which would reduce the chance of panic and contagion, so I’m sure this is what the FDIC is trying to do now,” wrote economics expert Noah Smith.
The shocking SVB story is drawing comparisons to Washington Mutual, the Seattle-based savings and loan association that was shut down amid the subprime mortgage crisis in 2008.
“I think everyone who lived through Washington Mutual’s failure was sort of reliving it again today after the FDIC took over Silicon Valley Bank,” said Kirsten Grind, author of The Lost Bank, a book about Washington Mutual.
Washington Mutual’s demise was followed by a “systemwide failure,” as more than 500 federally insured banks failed in the following seven years, The New York Times noted Friday.
Whether SVB is a canary in the coalmine and the beginning of a contagion remains to be seen.
Some analysts describe the pressures facing SVB as “highly idiosyncratic.” The bank had a unique focus on tech companies and venture capital firms.
“With WaMu, it was of course all about bad mortgages and the housing downturn — neither of those are factors here,” Grind told GeekWire.
Former Treasury Secretary Lawrence Summers told Bloomberg that as long as depositors are paid back in full, there is no systemic risk.
But Robert Burgess, executive editor of Bloomberg Opinion, wrote that SVB’s failure could be “the first sign that a recession has arrived.”
“In that sense, it’s no wonder this bank has everyone spooked,” Burgess wrote.
Grind noted another difference between SVB and Washington Mutual: the speed of collapse. There were two months between the first bank run at Washington Mutual to its takeover by JPMorgan Chase, said Grind.
The bank run at SVB began just this week. Its customers tried to withdraw $42 billion on Thursday alone.
“As for whether it should be sold, I think it’s always better to have an ultimate buyer for a failed bank to restore confidence among customers, and the system in general,” Grind said. “But it’s unclear what will happen in this case.”
The FDIC said insured depositors will have full access to their deposits no later than March 13, while SVB’s branches will reopen on Monday. It will pay uninsured depositors an advanced dividend within the next week. The FDIC insures accounts up to $250,000, though most of SVB’s deposits are above that limit.
Tech startups and investors should learn more about their cash soon. The stakes are high.
“Silicon Valley Bank failure could wipe out a whole generation of startups,” Garry Tan, CEO of famed startup accelerator Y Combinator, said on Twitter. “If there is not more action, this will become a contagion that spreads to other startups and other banks. Depositors must be made whole.”