Venture capitalist Peter Thiel had $50 million in his personal account at Silicon Valley Bank (SVB) when it collapsed, despite his venture capital firm, Founders Fund, advising all its investors to move their money out of the bank.
Founders Fund’s decision to withdraw its funds has been criticized for sparking the $42 billion panic that led to federal authorities taking over the bank on March 10.
Thiel’s personal account would have suffered losses if the Federal Reserve had not stepped in with a scheme to ensure that all depositors would retain their cash, as only the first $250,000 is normally covered by Federal insurance.
Founders Fund, which has more than $11 billion under management and has taken stakes in more than 100 companies, including SpaceX and Lyft, moved all its money out of SVB on March 9, the day after the bank issued a highly damaging press release.
SVB’s management’s actions are currently being investigated by the Federal Reserve, with some insiders calling their decisions ‘absolutely idiotic’ and expressing astonishment at their ‘Boy Scout’ behavior.
SVB’s rapid growth since the pandemic, its unusually high level of uninsured deposits, and its investments in long-term government bonds and mortgage-backed securities, which tumbled in value as interest rates rose, were cited as red flags.
SVB’s failure, along with that of New York-based Signature Bank over the weekend, has complicated the Fed’s upcoming decisions about how high to raise its benchmark interest rate in the fight against chronically high inflation.
Thiel, who co-founded PayPal and Palantir and was the first outside investor in Facebook, is now worth an estimated $4.5 billion.
He founded Founders Fund in 2005 and was one of the earliest mainstream investors to buy large sums of bitcoin.
Founders Fund closed almost all of its eight-year bet on cryptocurrency in April 2022, a month before the crisis hit.
The Fed will review its supervision of Silicon Valley, to understand how it might have better managed its regulation of the bank, after its recent failure.
The review will be conducted by Michael Barr, the Fed vice-chair who oversees bank oversight, and will be publicly released on May 1.
Many economists believe the central bank would have raised rates by an aggressive half-point at its meeting next week, which would amount to a step up in its inflation fight, after implementing a quarter-point hike in February.
However, the bank failures may lead the Fed to focus more on boosting confidence in the financial system than on its long-term drive to tame inflation.