- By Natalie Sherman and James Clayton
- BBC news
US regulators have shut down Silicon Valley Bank (SVB) and taken control of its customers’ deposits in the largest US bank failure since 2008.
The moves came as the company, a major tech lender, scrambled to raise money to close a loss on sales of higher-interest-hit assets.
The problems sparked a wave of customer withdrawals and sparked fears about the state of the banking sector.
Officials said they were acting to “protect insured depositors”.
Silicon Valley Bank was facing “insufficient liquidity and insolvency,” banking regulators in California, where the company is headquartered, said when announcing the acquisition.
The Federal Deposit Insurance Corporation (FDIC), which typically protects deposits of up to $250,000, said it had taken charge of the bank’s roughly $175 billion (£145 billion) of deposits, the 16th largest in the US.
Bank branches would reopen and customers with insured deposits would be able to access funds “by Monday morning”, it said, adding that the money raised from the sale of the bank’s assets would go to uninsured depositors.
Flight of investors
With many of the company’s clients in that position, the situation has left many companies with money tied up in the bank, worried about their future.
“I’m on my way to the branch to find my money. Tried to transfer it yesterday but couldn’t. You know those times when you could really get screwed but you’re not sure? This is so a moments,” a start-up founder told the BBC.
Another healthcare start-up founder said, “Literally three days ago, we just deposited a million dollars into our bank account… And then this happens.”
He managed to get the money into another account 40 minutes before the deadline. “It was pending. And this morning it was there. But I know other people who did the same minutes after me, and it hasn’t carried over.”
“It was a crazy situation,” he said.
Response of the controller
The collapse came after SVB said it was trying to raise $2.25bn (£1.9bn) to cover a loss caused by selling assets, mainly US Treasury bonds, that had been hit by higher interest rates .
The news caused investors and customers to flee the bank. Shares saw their biggest one-day drop ever on Thursday, plunging more than 60% and falling further in after-hours sales before trading was halted.
Concerns that other banks could face similar problems led to widespread selling of bank shares worldwide on Thursday and early Friday.
U.S. Treasury Secretary Janet Yellen said in Washington on Friday that she is following “recent developments” at Silicon Valley Bank and others “very carefully.”
She later met with key banking regulators, where the Treasury Department said it had “full confidence in banking regulators to take appropriate action in response and noted that the banking system remains resilient.”
SVB did not respond to a request for comment.
The company is a critical lender to early-stage companies and is the banking partner for nearly half of the U.S. venture capital-backed technology and healthcare companies listed last year.
The company, which started in 1983 as a California bank, has grown rapidly over the past decade. It now employs more than 8,500 people worldwide, though most of its operations are in the US.
But the bank is under pressure as higher rates make it more difficult for start-ups to raise money through private fundraising or share sales, and more clients are withdrawing deposits, moves that gained momentum this week.
In Silicon Valley, reverberations of the collapse were widespread as companies wondered what the collapse meant for their finances.
Even companies with no direct revenue were affected, such as customers of Rippling, a payroll software company that had used SVB. It warned that current payments could face delays and said it would switch its operations to another bank.
SVB’s UK subsidiary said it will go bankrupt from Sunday evening.
The Bank of England said Silicon Valley Bank UK would stop making payments or accepting deposits in the interim and that the move would allow individual depositors to receive up to £85,000 from the UK’s Deposit Guarantee Scheme.
“SVBUK has a limited presence in the UK and no critical functions supporting the financial system,” the BoE added.
The collapse of the SVB has not only been a major blow to the technology industry, but has also raised concerns about the broader risks facing banks as rapid interest rate rises hit bond markets.
Central banks around the world – including the US Federal Reserve and the Bank of England – have raised borrowing costs sharply over the past year to curb inflation.
But as interest rates rise, the value of existing bond portfolios tends to fall.
Those declines mean that many banks are sitting on significant potential losses – although the change in value would normally not be a problem unless other pressures force the companies to sell the holdings.
Shares in some major US banks rallied on Friday, but the sell-off continued to hit smaller companies, forcing names like Signature Bank and others to halt trading.
The technology-heavy Nasdaq ended the day down 1.7%, while the S&P 500 fell 1.4% and the Dow closed 1% lower.
Major European and Asian indices also closed lower, with the FTSE 100 falling 1.6%.
Alexander Yokum, equity research analyst at CFRA, said banks specializing in individual sectors are seen as vulnerable to rapid withdrawals like the one that hit SVB.
“Silicon Valley Bank wouldn’t have lost money if they didn’t have money left to give back to their customers,” he said. “The problem was people wanted money and they didn’t have it — they invested it and those investments dwindled.”
“I know there’s a lot of fear out there, but it’s definitely company specific,” he said.
“The average Joe should be fine,” he added, but he said tech companies will likely find it even harder to raise money. “It’s not good,” he said.
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