Silicon Valley Bank crash, FDIC to regulate

Silicon Valley Bank’s (SVB) failure leads to a shutdown by US regulators in what is deemed the largest banking failure since 2008.

The move came as the SVB, the 16th largest in the US, was reportedly ‘scrambling’ to raise funds to overcome a loss from the sale of assets, in turn, affected by higher interest rates in the country. After this, a rush of customer withdrawals was recorded, speaking fears about the condition of the US banking sector. Officials said that they have acted in the best of interests, to “protect insured depositors”.

California Financial Regulator which took over the bank last night said that the SVB was facing “inadequate liquidity and insolvency”. Meanwhile, the FDIC (Federal Deposit Insurance Corporation) which usually protects deposits of nearly $250,000, said it took charge of up to $175bn (£145bn) in deposits held at the bank.

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According to the FDIC, SVB offices will reopen their services for clients with insured deposits “no later than Monday” adding that the money which they raise from selling the bank’s assets would “go to uninsured depositors”.

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The situation has left many companies and start-ups worried about the future of their investments. Speaking with BBC, one of the clients said, “You know those moments where you might be really screwed but you’re not sure? This is one of those moments”. Another client, the founder of a healthcare start-up said, “Literally three days ago, we just hit a million dollars in our bank account… And then this happens.”

After the reports that SVB was trying to generate $2.25bn (£1.9bn) to overcome a loss caused by the sale of assets, investors and customers have been turning to the bank. It is believed, the sale assets loss was caused by US government bonds which were affected by higher interest rates across the country. A one-day drop in shares was recorded on Thursday, during which over sixty percent of shares fell, with more falling in the after-hours sales before trading came to a grinding halt.

The move has raised concerns that other banks across the US could be in similar predicaments leading to a widespread sale of bank shares on Thursday and Friday.

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US Treasury Secretary Janet Yellen, while speaking in Washington on Friday said that she was closely following the “recent developments” at the SVB and others “very carefully”. After her meeting with the banking regulators, Yellen expressed “full confidence” that the regulators would take “appropriate actions in response and noted that the banking system remains resilient”. On the other hand, SVB officials have made no comments.

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What is the future of Silicon Valley Bank?

The plunge is a major setback to the bank, with over 8,500 global employees operating primarily within the US. What started out as a California bank in 1983, soon boomed into a rapid expansion in the last decade alone. However, the latest move puts SVB and others like it under greater pressure as clients seek to withdraw deposits.

Despite major ripples across the US, in Silicon Valley alone, the reverberations of the collapse are widespread with companies trying to understand what it will mean for their individual businesses. Even businesses that have no direct connection to the bank’s loss, have also cautioned their clientele of possible payment delays until further notice. One such business, Rippling, which deals with payrolls software, has informed clients of possible delays as it attempts to transfer business to another bank.

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On the other hand, SVB’s subsidiary in the UK has informed that it would not be making any payments or accepting deposits. According to BBC reports, the Bank of England (BoE) said, “SVBUK has a limited presence in the UK and no critical functions supporting the financial system”.

According to CFRA’s equity research analyst, Alexander Yokum, banks like SVB that specialize in single industries are vulnerable to rapid withdrawals. Speaking on the SVB shutdown, Yokum said, “Silicon Valley Bank would not have lost money if they hadn’t run out of cash to give back to their customers”. He elaborated that the Silicon Valley Bank could not make the payments as “they had it invested and those investments were down”.

Silicon Valley Bank crash, FDIC to regulate | Baaghi TV