Silicon Valley Bank today was closed by the California Department of Financial Protection and Innovation, and the Federal Deposit Insurance Corporation (FDIC) was appointed receiver.
The Federal Deposit Insurance Corp. took control of the Santa Clara-based tech-focused lender following a run on deposits and a plummeting stock price.
“To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB),” the FDIC announced. “At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.”
All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, according to the FDIC. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. CNBC estimated that 95% of the bank's deposits were uninsured.
As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.
Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday. The new banking entity, DINB, will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear.
The FDIC reported that as of Dec. 31, Silicon Valley Bank had approximately $209 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the FDIC determined that the amount of deposits exceeded insurance limits
Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959. The agency said SVB loan customers should continue to make their payments as usual.
Silicon Valley Bank is the first FDIC-insured institution to fail this year. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, in October 2020.
The regulators' move came less than two hours after a decision by tech funding giant SV Financial Group, parent company of Silicon Valley Bank, to halt trading shortly after markets opened this morning on NASDAQ – after its stock collapsed in 24 hours from $176.55 to $39.25 per share – sent shock waves across financial markets worldwide.
Barrons called the Silicon Valley Bank stock collapse – down 60% at the close of markets Thursday and as much as another 69% in pre-trading today – “the largest percentage decrease ever.”
The stock trading (ticker symbol SIVB) was halted at 10:43am EST “for news pending.” The Wall Street Journal reported the bank is seeking a buyer after the lender canceled a plan to shore up its finances by selling off assets following a decline in deposits. On Thursday, the bank had reported $212 billion in assets. Silicon Valley Bank has been reported as the largest in Silicon Valley, based on local deposits.
Barrons reported the bank’s actions Thursday and the NASDAQ reaction caused traders to take a closer look at all bank stocks—particularly their deposits—causing the KBW Nasdaq Bank Index to fall 7.7%. The New York Times reported that this $52 billion sell-off was the worst in three years.
The stunning development that continued to rattle all bank stocks prompted an impromptu comment from Treasury Secretary Janet Yellin today as she was testifying on President Joe Biden’s proposed budget at a House Ways and Means Committee hearing.
“There are recent developments that concern a few banks that I'm monitoring very carefully. When banks experience financial losses, it is and should be a matter of concern,” Yellen told the House panel.
Analysts said the Santa Clara-based lender was forced to sell securities to realign its portfolio in response to higher interest rates while it manages lower deposit levels from clients, many of whom are local venture capitalists.
This morning’s Wall Street Journal headlines online tell the tale:
- Banks Lose Billions in Value After Tech Lender SVB Stumbles
- SVB Stock Halted After Sharp Selloff; Bank Exploring Possible Sale
- SVB Financial Explores Sale After Failing to Raise Capital
- Silicon Valley Bank Crisis Unsettles Bank Investors
One Twitter comment picked up by financial media called the collapse of the SVB Financial Group “a Lehman Moment for the start-up world,” a reference to the 2008 bankruptcy of global investment bank Lehman Brothers that triggered a worldwide financial crisis.
The New York Times reported that prominent venture capitalists – led by Peter Thiel’s Founders Fund – “recommended companies withdraw their money from the lender, sparking further worries over its financial health and liquidity in the wider banking sector.”
Business Insider reported that Silicon Valley Bank’s rivals were already pouncing on the news as a business opportunity, “pitching startups on moving their money away from the struggling bank.”
Silicon Valley Bank had surprised the market by announcing late Wednesday it needed to raise $2.25 billion in stock.
CNBC reported that SVB’s CEO Greg Becker held a call with clients Thursday afternoon in an attempt to calm their fears.
Meanwhile, on svb.com there was no mention of the developments.
The bank reports that 44% of U.S. venture-backed technology and healthcare IPOs year-to-date banked with SVB.
The bank touts that Forbes' 13th annual look at America's Best Banks ranks SVB 15th out of the 100 largest publicly-traded banks based on growth, credit quality and profitability.
Until this week, investors had believed financial stocks were insulated from the turmoil caused by continued inflation and rising interest rates.
Today’s news was felt around the world.
The London Times reported that “UK banks slide after Silicon Valley Bank triggers sell-off in financial stocks.”
The New York Times reported that “Contagion concerns spooked the global markets on Friday, rattling stocks from Tokyo to London.”
“Bank stocks were the hardest hit, but smaller lenders like SVB, which has funded start-ups worldwide, are viewed as being particularly vulnerable — and now face potentially serious threats to their survival,” the Times reported.
SVB Financial Group provides loans and financial services to startups, private equity, and venture capital firms. The bank, with headquarters on Tasman Drive in Santa Clara, has four segments: Silicon Valley Bank, SVB Private, SVB Capital, and SVB Securities. In addition to providing loans to venture-capital-backed startups, the company invests in private equity and venture capital funds. The bank operates throughout the United States and maintains offices in Canada, the United Kingdom, Israel, China, India, Germany, Denmark, and Ireland.