Fed's Barr testified as SVB clients sought to withdraw almost all of their deposits

Silicon Valley Bank's deposits were subject to a run in the past month that went considerably deeper than initially anticipated.

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On March 9, the day after regulators seized SVB, it became public knowledge that panicked customers withdrew $42 billion from the bank because they were concerned that uninsured deposits might be exposed.

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However, that pales in comparison to what would have been sent out the next day, according to Michael Barr, the vice chair of the Federal Reserve's supervision committee, who testified Tuesday before the Senate Banking Committee. SVB was shut down by regulators on March 10 following the largest bank failure since the financial crisis in 2008.  

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On that morning, the bank informed Barr that, based on client requests, they expected the outflow to be far greater than they initially expected. "There was an estimated $100 billion worth of transactions scheduled to take place that day alone."

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There has been an increase of $142 billion in withdrawals since the end of last year, representing an incredible 81% of SVB's $175 billion in deposits at that time.

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In an attempt to clarify why Silicon Valley Bank and Signature Bank were unable to pay dividends earlier this month, U.S. lawmakers summoned top banking regulators to Washington. Barr and others are pointing to mismanagement by bank executives and pointing out that banks with assets exceeding $100 billion may require stricter regulations to protect their assets. Former CEOs of the banks did not attend the event.

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SVB management was first warned about the risks of higher interest rates to the bank's balance sheet by Fed supervisors in November 2021, according to Barr's testimony at the hearing. This month, the bank was exposed to a run on its deposits as a result of a "failure to address" concerns raised by the U.S. Federal Reserve.

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SVB’s final days

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It has been a roller coaster ride of emotions as SVB draws to a close as an independent bank. As a result of SVB management's "belated" attempts to raise capital late Wednesday, March 8, and early Thursday, March 9, Barr testified that the situation appeared to have calmed down early Thursday morning after the company spooked investors and customers.

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“But as of Thursday afternoon, deposit outflows began, and by the evening of Thursday, we learned that more than $42 billion had been withdrawn from the bank, as you indicated, as a result of this crisis,” he said.

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During the week of March 9, Fed staff worked around the clock to save the bank, searching for enough collateral so that it could borrow additional billions of dollars from the Fed's discount window to honor withdrawal requests, Barr said.

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Regulators thought they had a solution to the bank's problem the morning SVB was taken over, only to run into a $100 billion wall of withdrawals.

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They were shut down because "they were truly unable to meet their responsibilities to pay their depositors throughout the course of that day," according to Barr.