Silicon Valey Bank (SVB), a tech startup-focused lender, was shut down by US regulators on Friday, in what is described as the largest bank failure since the 2008 banking crisis.
“We’ve taken over Silicon Valley Bank under California Financial Code section 592 due to insufficient liquidity & insolvency,” the California Department of Financial Protection and Innovation said in an announcement.
The crisis was triggered by a Thursday announcement that SVB had lost $1.8 billion after selling securities worth $21 billion to hedge against a challenging market, Forbes explains. Then the shares of SVB Financial Group started to suffer losses of around 60% on two consecutive days until sales were eventually halted.
Market insiders have expressed concerns about the potential consequences of SVB’s closure on the stock market and banking sector in the coming week, while efforts are reportedly being made during the weekend to find a partner or buyer for SVB.
The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails and the dominoes continue to fall. That is why gov’t intervention should be considered.
— Bill Ackman (@BillAckman) March 10, 2023
Depositors’ access to funds after US Silicon Valley bank shut down
SVB, which ranked as the 16th biggest bank in the U.S. at the end of last year, operated 17 branches in California and Massachusetts, all of which will reopen on Monday, March 13, during their normal business hours. Online banking and other services will also resume, while SVB’s official checks will continue to clear.
As of December 31, 2022, SVB, had approximately $209 billion in total assets and $175.4 billion in total deposits.
Deposits are insured up to $250,000 per depositor, but at the time of closing, the amount of deposits in excess of the insurance limits was undetermined.
According to DFPI’s announcement, all insured depositors will have full access to their insured deposits no later than Monday morning.
On the other hand, the Federal Deposit Insurance Corporation (FDIC), which is the appointed receiver, will pay uninsured depositors an advance dividend within the next week. They will also be given a receivership certificate for the remaining amount of their uninsured funds, and as the FDIC sells the assets of SVB, “future dividend payments may be made.”
Reasons behind SVB’s closure
A Reuters analysis attributes SVB’s failure mainly to the Federal Reserve System’s interest rate hikes in the last year, which have largely affected the startup sector that SVB was lending to.
Nonetheless, questions were raised on Saturday as reports emerged that SVB Finance Group CEO Greg Becker had sold $3.6 million of company stock under a trading plan less than two weeks before the firm disclosed the extensive losses which led to its eventual failure.
According to Reuters, Becker had sent on Friday a video message to SVB employees describing the “incredibly difficult 48 hours” leading up to the collapse and saying that he was working with banking regulators to find a partner for the bank.
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