Silicon Valley Bank’s Place in Bailout History

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FDIC maintains a really nice database of bank failures throughout history.  You can download their data as an Excel workbook.  I did that because I wanted to learn Silicon Valley Bank’s place in bailout history.

A word of warning about the FDIC database. As far as I can tell, banks start being dropped from the download workbook if the timespan is much longer than about 20 or 30 years.  Be careful out there.

Before I delve into the numbers, a second word of warning and a note to other researchers.  We don’t know what the ultimate cost to FDIC will be from the SVB bailout. And we probably won’t know for a year or so.  It will take that long to unwind SVB’s balance sheet.  That is the number I’d like.  But it’s not available.  I used total assets instead.

My note to researchers is obvious to anyone who has taken econ 1.  Reporting has used nominal dollar values.  The correct measure for comparison is real dollars.  I used the price deflator for net national product, the closest I could come to a deflator for national income.  Don’t like my choice of deflator? Click here to download my Excel workbook.  Substitute your deflators on the worksheet named … Deflators. The deflator values should use a base year of 100. (Enter 121 as 121.) Be sure your numbers align with the year in question and they will be automatically reflected in the two relevant worksheets: “Really all banks assets sort” and “Really all banks totalCost sort.”

If you want to save time, here’s my conclusion. Using real assets as a measure of the size of the bailout, SVB is the fourth largest in history.  That’s right: it’s the same ranking that has been widely reported.  When you’re dealing with dollar amounts this large, deflating the dollars doesn’t make much difference.

The same cannot be said of Continental Illinois Bank (1984). Read on for details.

A Brief History

Irvine Sprague catalogs the first four bailouts.  I added a fifth, Houston’s First Texas City (April 20, 1988).  Here’s the history:

The First Four Bailouts Plus 1 Silicon Valley Bank's Place in Bailout History

The First Four Bailouts Plus 1. Click for larger image.

Unity Bank was a special case.  Located in the then largely African-American neighborhood, Unity ran into trouble in 1971.  This was an era of urban unrest.  The last thing the regulators wanted to do was trigger a protest by not paying off deposit accounts in excess of $100,000 (the FDIC ceiling back then).  Despite the bank’s small size, the regulators bailed out depositors.

Far and away the most interesting case is Continental Illinois (May 17, 1984).  Their bankers had the brilliant idea of making loans to oil drillers in Oklahoma and Texas.  Because, as everyone knows, bankers working in Chicago have a solid understanding of the oil industry at any level.  Their ignorance caused a bailout that still remains the eighth largest in U.S. history using real assets as the measure. Naturally, I included SVB in the count. (For those using my Excel workbook, please see the worksheet “Really all banks assets sort.” If you wonder why, see the second paragraph above.)

Where Does SVB Fall In History?

As noted earlier, SVB was the fourth largest bank failure in U.S. history.  The FDIC database is inconsistent about the cause and actions taken in the process of managing the bank failure. Beginning in 1993 the Rescue Type (RESTYPE) changes from ASSISTANCE to FAILURE.  I’m writing a separate article about the meaning of “bailout.”  Stay tuned.

Here’s the relevant table showing the rankings of SVB and Continental Illinois. SVB was, indeed, a humongous bailout.  I’ll just add that one reason for Continental Illinois’s high ranking is the year: 1984. The NNP deflator for that year was about 50.  The nominal loss in 1984 dollars was about half the $79 billion real amount.

Failures sorted by assets Silicon Valley Bank's Place in Bailout History

Failures sorted by assets. Click for larger image.

Conclusion

Remember, folks, it’s real money amounts that matter, not the nominal amounts.  Continental Illinois would rank ninth using nominal dollars.

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About Tony Lima

Retired after teaching economics at California State Univ., East Bay (Hayward, CA). Ph.D., economics, Stanford. Also taught MBA finance at the California University of Management and Technology. Occasionally take on a consulting project if it's interesting. Other interests include wine and technology.