When the Federal Deposit Insurance Corp. seized Silicon Valley Bank on March 10, 2023, in the biggest U.S. bank collapse since 2008, customers temporarily lost access to their money. In addition, customers—mostly startups and tech companies—found their credit cards had stopped working.
In the immediate aftermath of the Silicon Valley Bank (SVB) debacle, the fate of its credit card accounts was unclear. As of Dec. 31, 2022, SVB’s loan portfolio included $555 million in credit card loans, down from $583 million at the same time a year earlier. All of the bank’s credit cards were geared toward businesses rather than everyday consumers.
At least for now, SVB’s cardholders are in limbo. So, what should the bank’s cardholders do? And what should you do if you’re not an SVB customer but your credit card company goes out of business?
What should SVB cardholders do?
Personal finance expert Eric Rosenberg said that even if a credit card issuer disappears, your card balance doesn’t.
While some cards may be closed when the issuer closes, you should still plan to make payments as usual unless you’re told otherwise in an official communication. Keep your eyes on your mailbox and inbox for information about your account status and if there’s a change in where you’re supposed to make your payments.
Rosenberg explained that SVB’s credit card business could wind up in the hands of a company that buys all of the bank’s assets. Or the credit card business might be sold by itself to another credit card issuer or bank. Depending on the buyer, an SVB card might work as usual or might be converted to a different credit card, he said.
The same scenarios could apply to a situation involving any card issuer that goes under.
For now, SVB cardholders face a waiting game. In the meantime, it might be a good idea to apply for a card from a different issuer in case your SVB account is shut down, Rosenberg advised.
FDIC takes action
In a statement issued March 13, 2023, the Federal Deposit Insurance Corp. (FDIC) said all SVB deposits—both insured and uninsured—along with “substantially” all of the bank’s other assets were being shifted to an FDIC-run bank also known as Silicon Valley Bank. Before it crumbled, SVB ranked as the country’s 16th largest bank as measured by assets.
“All depositors of the institution will be made whole,” the FDIC said.
The FDIC statement didn’t make specific mention of SVB credit card holders. However, the statement’s reference to loan payments might include credit card payments. An FDIC representative couldn’t be reached for comment.
What’s next for SVB’s credit cards?
So far, the FDIC has not identified a bank interested in buying what’s left of SVB’s U.S. operations, including the credit card business. However, The Wall Street Journal reported that the FDIC was planning a second auction of SVB’s assets after the initial auction failed to attract any acceptable bids.
In an FAQ on its website about the SVB collapse, Goodwin Proctor, a Boston-based law firm with an office in Silicon Valley, said it had no “specific information” about the status of SVB’s credit card business.
“It is possible that the FDIC could locate a credit card issuer that is willing to acquire the card accounts and related receivables,” Goodwin Proctor noted, “and continue to service them.”
Is there a lesson from the Washington Mutual collapse?
That’s what happened in 2008 after the massive collapse of Washington Mutual Bank during the mortgage crisis.
J.P. Morgan Chase absorbed Washington Mutual’s credit card business as part of its acquisition of the defunct bank’s assets. At the time, Chase said the acquisition of Washington Mutual’s credit card business made it the largest credit card issuer in the country, with more than 168 million cards and over $190 billion in credit card loans.
The following year, though, Chase canceled the accounts of some Washington Mutual cardholders, according to NBC News. In response to an inquiry from NBC News, a Chase spokeswoman declined to indicate how many Washington Mutual cardholders were affected.
“As a responsible, careful lender, we constantly evaluate the risks and costs of funding credit card loans. We are also evaluating changes required due to pending regulations,” the Chase spokeswoman said in 2009. “When necessary, we make changes to pricing, terms or credit lines based on borrower risk, market conditions and the costs to us of making loans. These are factors we have always monitored and processes we have consistently followed.”
SVB was friendly to startups
Unlike Chase and most competitors, SVB was willing to take a risk on extending credit to startups, which often struggle with cash flow. SVB’s startup customers included Seattle-based food management startup Shelf Engine.
“If you’re a high-growth startup, you can’t get a credit card from a normal credit card provider, you can’t get a loan from a big bank, but Silicon Valley Bank would give you that,” Stefan Kalb, co-founder and CEO of Shelf Engine, told NPR. “It’s these services that startups couldn’t get elsewhere.”
SVB promoted its Innovators Card as a “scalable business card” that offered flexibility to manage business purchases and debts. Purchases made with the card earned unlimited 2x cash-back rewards. The card was aimed at startups as well as companies backed by venture capital firms.
Technically, the SVB card was a charge card. No interest was assessed, as balances were expected to be paid in full every month, and no preset spending limit was imposed. The Innovators Card didn’t charge an annual fee.
On top of those benefits, the card didn’t require a personal guarantee. A personal guarantee requires someone to promise they’ll cover account payments if the business can no longer make payments.
A review published in January 2023 by Fit Small Business characterized the SVB card as “a great option for business owners wanting to earn fixed-rate rewards on eligible purchases without paying annual fees and those with SVB business checking or savings accounts.”