A Silicon Valley bank was seized by financial regulators after an influx of deposits caused the bank to fail.
The bank was closed on Friday by the California Department of Financial Protection and Innovation, which has designated the Federal Deposit Insurance Corporation (FDIC) as the recipient, officials said in a statement.
The FDIC said depositors will have full access to their insured deposits no later than Monday morning. The federal agency insures each depositor for at least $250,000.
This is a breaking news update, more to follow.
Shares of SVB fell as much as 64% in pre-market trading after dropping nearly 60% in the previous session, when it revealed plans to raise more than $2 billion from investors to counter $1.8 billion in losses from the bond sale.
The bank was preparing Friday morning to announce that it was in discussions about a sale — but news emerged that a huge run on bank deposits has cast doubt on the bailout merger, according to a report by CNBC citing sources.
“The market should prepare for the possibility of no sale, and then you can leave it up to your own imagination what that means,” CNBC anchor David Faber said on a call with the network while on vacation.
The trading halt on SVB shares began at 8.35am on Friday and extended for more than two hours without any announcement as promised. If the bank fails to find a buyer, it could face interference from federal regulators, who usually turn to
In a note reported by Reuters, SVB Financial Group asked its employees to work from home until further notice, saying, “SVB is undergoing a series of unfinished conversations to determine the company’s next steps.”
The Santa Clara, California-based bank is the 18th-largest bank in the United States with $212 billion in assets as of September, catering primarily to tech startups and Silicon Valley investment funds.
Shares of SVB fell 44% in pre-market trading, after falling nearly 60% in the previous session, as investors worried about the strength of its balance sheet.
On Thursday night, the Founders Fund, the venture capital fund co-founded by Peter Thiel (above), advised companies to withdraw money from Silicon Valley Bank
On Thursday night, the Founders Fund, the venture capital fund co-founded by Peter Thiel, advised startups to withdraw their money from Silicon Valley Bank amid concerns about its financial stability, according to Bloomberg.
Theil’s warning, and a similar alert from startup incubator Y Combinator, heightened fears that running SVB deposits could drive the bank into bankruptcy, if it is unable to meet demand for customer withdrawals.
This came after the parent company, SVB Financial Group, announced a huge capital increase to cover the loss of $1.8 billion from the sale of the bonds, which the bank had to liquidate to cover the sharp drop in deposits.
That plan failed to assuage investors who feared whether the capital increase would be enough to cover the bank’s rapidly dwindling deposits.
SVB said its deposits are falling faster than it expected due to increased spending by its clients, especially tech and healthcare start-ups, as new batches of venture capital dry up amid rising interest rates.
In response, billionaire hedge financier Bill Ackman has led calls for a government bailout of troubled SVB Bank, saying a collapse of the bank would hurt the broader economy.
“A failure of SVB Financial could destroy an important long-term engine of the economy as venture capital-backed companies rely on SVB to obtain loans and retain their operating funds,” Ackman wrote in a tweet.
He added, “If private capital cannot provide a solution, a very light government bailout should be considered.”
SVB revealed Thursday that it is grappling with a liquidity crunch due to declining deposits from tech startups that are suffering from a VC funding drought.
The company’s assets and deposits nearly doubled in 2021, and the bank has poured much of that money into US Treasurys and other government bonds.
But as higher interest rates hit the tech startups primarily served by the bank, lower deposits forced the SVB to sell its bond holdings — which had meanwhile fallen in market value due to a rising price environment.
However, SVB CEO Greg Baker insisted in a letter to investors that the bank remains “well capitalized, with a high quality liquid balance sheet and leading capital ratios.”
SVB CEO Greg Baker insisted in a letter to investors that the bank remains “well capitalized, with a quality liquid balance sheet and leading capital ratios.”
Billionaire hedge financier Bill Ackman has led calls for a government bailout of troubled SVB, which caters to tech startups in Silicon Valley.
However, the situation at SVB has inevitably drawn comparisons to previous bank runs in US history, some of which had disastrous consequences.
A bank run is when customers quickly withdraw their deposits from a financial institution due to fears that it will fail, which can become a complete prophetic if the rapid decline in deposits prompts the bank to default.
How high interest rates led to the SVB crisis
The Silicon Valley bank, which primarily caters to tech startups, saw its assets and deposits nearly double in 2021, during a venture capital boom amid low interest rates.
The bank pumped most of that money into US Treasury bonds and other government bonds for safekeeping.
But the bank revealed on Wednesday that its deposits had fallen Sharply, with many startups withdrawing their accounts as investment funding dries up due to higher federal interest rates.
To cover the withdrawals, SVB sold many of its bonds, which fell in market value as interest rates rose, losing $1.8 billion.
To cover the losses on the sale of the investment, the bank announced plans to raise more than $2 billion from investors.
The announcement raised concerns about the bank’s solvency, which led to an outflow of deposits that threatened to bankrupt SVB.
The onset of the Great Depression in the early 1930s was marked by a large number of operations on commercial banks, in a panic that brought disaster to the economy.
In 1931, the United States Bank of New York collapsed in a wave of banking. It had more than $200 million in deposits at the time, or $3.8 billion in today’s dollars, and the failure set off a series of run-ins for other banks.
The largest banking failure in US history was the collapse of Washington Mutual in September 2008, then the nation’s largest savings and loan and sixth largest overall financial institution.
After customers withdrew $16.7 billion in deposits over 10 days, federal regulators took the highly unusual step of shutting down WaMu on Thursday.
Normally, the FDIC seizes failing banks at the close of business on a Friday, to allow another institution to take over operations at the failing bank over the weekend.
The FDIC protects depositors’ place in insured banks in the unlikely event of failure. Each depositor is insured for a minimum of $250,000 per insured bank.
This week, the turmoil in the SVP triggered market selling in peers with similar exposure, with shares of San Francisco-based First Republic falling 16.52% on Thursday after hitting their lowest level since October 2020.
The situation has also raised fears of market contagion, after the S&P 500 banking index plunged more than 6% in its biggest one-day drop in more than two years on Thursday.
The four largest US banks — JPMorgan Chase, Bank of America, Wells Fargo and Citigroup — saw their share prices fall between 4% and 6%, wiping out $52.3 billion from their collective market capitalization for the day.
The declines in the big four banks, while smaller in percentage terms, sent markets lower, with a 5.4% loss in JPMorgan that weighs more than any other stock in the S&P 500.
Silicon Valley Bank is headquartered in Santa Clara, California. The bank is the 18th largest bank in the United States with assets of $212 billion as of September
The Silicon Valley hike has everyone worried about people’s capital levels and what deposits are doing. A lot of institutional investors aren’t comfortable owning some banks right now, RJ Grant, head of trading at Keefe, Bruyette & Woods in New York, told Reuters.
It just panics people because Silicon Valley, historically has been a very strong and well-run bank. If they have issues right now, people are wondering what about other banks that are less good and don’t have the reputation that a Silicon Valley bank has.
The turmoil in the SVB followed testimony from Federal Reserve Chairman Jerome Powell this week, where he said the central bank will likely need to raise interest rates more than expected in response to recent strong inflation data.
The collapse in SVB has already raised investor concerns about the health of US and other European banks.
The S&P 500 banking index fell 6.6% on Thursday, while the sell-off in major European banks on Friday weighed on the main indices in the region.
However, some analysts saw the fears as exaggerated, and saw the volatility as an opportunity to pick up bank stocks at a discount.
“Concerns about unrealized losses in banks’ bond portfolios, spurred by sharp declines in US bank share prices yesterday, present a buying opportunity for European banks in our view,” Credit Suisse analysts wrote in a note.
The chaos on Wall Street eased somewhat on Friday, with JPMorgan shares rising less than 1% in early trade, and shares in other major US banks dropping between 0.75% and 1.6%.
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