Silicon Valley Bank becomes 'largest bank' to collapse 'since 2008' financial catastrophe: report

10 March 2023

Silicon Valley Bank has officially closed, making it "the largest bank to fail since the 2008 financial crisis," the New York Times reports.

Per NYT, the "go-to lender for start-ups," was collaborating "with advisers on a potential sale," this week, according to a person familiar with the matter, "and had halted trading in its shares in the wake of a rapid fall."

The bank, NBC reports, was closed by The California Department of Financial Protection and Innovation "to protect deposits."

"The 16th largest" bank in the country will now be controlled by the Federal Deposit Insurance Corporation (FDIC), according to The Wall Street Journal.

WSJ reports:

The Federal Deposit Insurance Corp. said it has taken control of the bank via a new entity it created called the Deposit Insurance National Bank of Santa Clara. All of the bank’s deposits have been transferred to the new bank, the regulator said.

According to NYT, the regulator also mentioned "the new entity would be operating by Monday and that checks issued by the old bank would continue to clear."

WSJ reports:

SVB, based in Santa Clara, Calif., earlier this week surprised investors by announcing that it lost nearly $2 billion selling assets following a larger-than-expected decline in deposits. The stock has lost more than 80% since then, and tech clients rushed to pull their deposits over concerns about the bank’s health.

Having experienced a decline "for more than a year," according to the NYT, the bank's fall was anticipated.

NYT reports:

Though Silicon Valley Bank advertised itself as a "partner for the innovation economy," it was being shaken by decidedly old-fashioned decisions. To compete with bigger names, it had long boasted of looser lending standards for fledgling companies, and offered to pay higher interest rates on deposits than its larger rivals.

As of the end of last year, NBC reports:

[SVB] had $209 billion in assets with more than $175 billion in deposits. As with other FDIC-member banks, SVB deposits are insured up to $250,000 per depositor.

But the FDIC has yet to determine how many of those deposits exceed that insurance limit, and the agency said it would be "working over the weekend" to pin that down.

Although SVB had the technology savvy team and necessary tools to push through the economic turmoil of the pandemic, NBC reports "overzealous hiring during the public health crisis has more recently led the tech sector to institute sweeping layoffs, as the Federal Reserve sharply increased borrowing costs to cool inflation and has raised expectations of an economic slowdown."

"The issue here is what is the domino effect of problems outside the banking industry on the banks themselves?" bank analyst Mike Mayo told NBC. "Banks are still the heart of the economy, and if there’s issues, then banks are going to feel it."

The New York Times' full report is available at this link (subscription required). The Wall Street Journal's report is here (subscription required). NBC's report is here.

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