The Federal Deposit Insurance Corp.'s (FDIC) decision to backstop all deposits, following Silicon Valley Bank’s (SVB) failure, provided significant relief not just to numerous small tech startups but also to large corporations that were not facing immediate risk. Among these were Sequoia Capital, the world-renowned venture capital firm, whose $1 billion deposit was covered, and Kanzhun Ltd., a Chinese tech firm running mobile app Boss Zhipin, which received a backstop for over $900 million. An FDIC document, mistakenly released unredacted, has given an insight into the extent of deposits held by SVB’s major clients.
This action was not without controversy. Critics have argued that the decision to guarantee all accounts beyond the $250,000 federal deposit insurance limit has created a moral hazard. A debate is ongoing about whether the insurance limit needs to be increased for businesses. Furthermore, the decision to insure all deposits has been viewed by some as a bailout, with critics expressing concerns over coverage for Chinese companies doing business with the bank.
In response to the decision to cover all deposits at SVB and Signature Bank, another bank which failed around the same time, the FDIC proposed an additional fee for large banks to help replenish the U.S. government’s deposit insurance fund. The estimated cost to the fund from covering all depositors at SVB and Signature was around $15.8 billion. Despite the controversy, FDIC Chairman Martin Gruenberg maintained that the guarantee to uninsured depositors was necessary, covering small to midsize businesses and accounts with large balances.
The document revealed SVB was also a primary bank for tech industry giants, serving both small startups and major corporations. For example, Sequoia Capital, known for backing companies like Apple and Google, held a portion of its $85 billion assets under management at SVB. Other significant depositors include Kanzhun, Altos Labs Inc., Marqeta Inc., and Circle Internet Financial Ltd. Despite the guarantee of their deposits, some businesses like Marqeta had already begun the process of transferring funds to other banks.
