On Friday, Silicon Valley Bank was closed by US regulators as panicked customers withdrew $42bn, equivalent to a quarter of its total deposits, in just one day.
The bank’s failure to raise new capital led to concerns about its future as a tech-focused lender. With $209bn in assets, SVB has become the second-largest bank failure in US history, following the 2008 collapse of Washington Mutual, marking a swift downfall for a lender valued at over $44bn just 18 months ago.
The Federal Deposit Insurance Corporation, which guarantees bank deposits up to $250,000, has closed SVB, and insured depositors will have access to their funds by Monday. A possession order by a California financial regulation agency revealed the extent of the withdrawals, which left SVB insolvent with a negative cash balance of approximately $958mn. While the regulator stated that initial payments would be made to depositors next week, the remainder would depend on the fate of SVB’s assets.
Many of SVB’s customers were venture capital funds and start-ups in the technology and healthcare sectors, with account balances exceeding the maximum amount insured by the FDIC. In some cases, these customers were encouraged to withdraw their funds by their venture capital backers.
SVB has been closed by the California Department of Financial Protection and Innovation and its funds have been placed under the control of the Federal Deposit Insurance Corporation (FDIC). The Deposit Insurance National Bank of Santa Clara, a new entity created by the FDIC, will manage SVB’s 17 branches, which will reopen on Monday. However, only insured deposits up to $250,000 are guaranteed by the FDIC, leaving deposits above that amount uninsured.
Uninsured depositors will receive an “advance dividend” within a week and a receivership certificate for the remaining amount of their funds. The FDIC may make additional dividend payments to those with uninsured deposits as it sells SVB’s assets. As of the end of last year, SVB had total assets of about $209 billion (£173 billion) and total deposits of almost $175.4 billion.
After suffering investment losses and a resulting crisis of confidence, the tech-oriented lender, which was once valued at $44 billion, was forced to come under regulatory control. Customers withdrew their funds from their accounts under pressure from investors, prompting Silicon Valley Bank to instruct its employees to work from home until further notice.
Shares were suspended and officials took control of the bank last night, putting billions of dollars in deposits at risk.
The Bank of England is said to be monitoring the situation and reaching out to UK-based banks, but it is confident that the largest lenders can withstand any fallout.
