On Friday, the U.S. Federal Deposit Insurance Corp. (FDIC) announced Silicon Valley Bank (SVB) has been shut down following a series of financial challenges, making it the largest U.S. bank failure since the global financial crisis more than a decade ago.
SVB was a key player in the tech and venture capital community, leaving companies and wealthy individuals largely unsure of what will happen to their money.
Investors King understands that on Wednesday SVB had announced it was looking to raise over $2 billion in additional funds after $1.8 billion was lost on asset sales.
However, on Thursday investors sold off the company’s shares when efforts to raise capital had failed, leading to a 60% decline in SVB Financial Group value, the parent company of SVB. On Friday, the bank lost another 60% in premarket trading before it was taken over by FDIC to avert further damages.
The closure of SVB would impact not only the deposits but also credit facilities and other forms of financing. SVB was a major bank for venture-backed companies, which were already under pressure due to higher interest rates and a slowdown for initial public offerings that made it more difficult to raise additional cash.
The FDIC said loan customers of SVB should continue to make their payments as normal.
The FDIC has created the Deposit Insurance National Bank of Santa Clara, which now holds the insured deposits from SVB. The FDIC’s standard insurance covers up to $250,000 per depositor, per bank, for each account ownership category.
The FDIC said uninsured depositors would get receivership certificates for their balances. The regulator said it would pay uninsured depositors an advanced dividend within the next week, with potential additional dividend payments as the regulator sells SVB’s assets.
Whether depositors with more than $250,000 ultimately get all their money back will be determined by the amount of money the regulator gets as it sells Silicon Valley assets or if another bank takes ownership of the remaining assets. There were concerns in the tech community that until that process unfolds, some companies may have issues making payroll.
The move represents a significant blow to the tech and venture capital community, as SVB was a major player in financing startups and other tech companies. The closure of the bank leaves companies and wealthy individuals largely unsure of what will happen to their money, creating uncertainty and potentially disrupting operations for some businesses.
While many Wall Street analysts have argued that the struggles for SVB are unlikely to spread to the broader banking system, shares of other mid-sized and regional banks came under pressure Friday. Treasury Secretary Janet Yellen said during testimony before the House Ways and Means Committee on Friday morning that she was “monitoring very carefully” developments at a few banks. Yellen made her comments before the FDIC announcement. Shortly after leaving Capitol Hill, Yellen convened a meeting of top officials at the Fed, the FDIC, and the Comptroller of the Currency specifically to discuss the situation at SVB.
