Silicon Valley Bank collapses after failing to raise capital

() — Silicon Valley Bank collapsed this Friday morning after an impressive 48 hours in which its capital crisis sparked fears of a collapse across the banking industry.

California regulators shut down the tech lender and put SVB in control of the US Federal Deposit Insurance Corporation. The FDIC acts as a receiver, which typically means it will liquidate the bank’s assets to pay its customers, including depositors and creditors. The FDIC is an independent government agency that insures bank deposits and supervises financial institutions.

The FDIC said all insured depositors will have “full access” to their insured deposits by Monday morning, and will pay uninsured depositors an “advance dividend within the next week.”

The bank, formerly owned by SVB Financial Group, did not respond to ‘s request for comment.

SVB shares were halted on Friday morning after falling more than 60% in premarket trading. Shares fell 60% on Thursday after the bank said it had to sell a portfolio of US Treasuries and $1.75bn in losing stocks to cover rapidly declining customer deposits, essentially ahead of a bank run.

Several other bank stocks were temporarily halted this Friday, including First Republic, PacWest Bancorp and Signature Bank.

While relatively unknown outside of Silicon Valley, SVB’s business caters to riskier tech startups that have recently been hit by higher interest rates and declining venture capital.

The bank partnered with nearly half of all VC-backed healthcare and technology companies in the United States, many of which withdrew deposits from the bank.

On Thursday, as bank shares around the world fell in response to the crisis at SVB, fears of contagion spread on Wall Street. Hedge fund manager Bill Ackman compared the situation at SVB to the final days of Bear Stearns, the first bank to collapse at the start of the 2007-2008 global financial crisis.

“The risk of bankruptcy and deposit losses here is that the next least capitalized bank runs out of business and the dominoes keep falling,” Ackman wrote in a series of tweets.
By this Friday, the panic seemed to subside. Bank shares were largely down but stable.

Mike Mayo, a senior banking analyst at Wells Fargo, said the crisis at SVB may be “an idiosyncratic situation.”

“This is night and day on the global financial crisis of 15 years ago,” he told ‘s Julia Chatterly on Friday. Back then, she said, “banks were taking excessive risks and people thought everything was fine. Now everyone is worried, but below the surface, the banks are more resilient than they have been in a generation.”

Rising interest brings consequences

SVB’s sudden drop reflected other risky bets that were exposed in last year’s market turmoil.

Crypto-focused lender Silvergate said Wednesday that it is winding down its operations and will liquidate the bank after taking a financial hit from the turmoil in digital assets. Signature Bank, another crypto-friendly lender, was hit hard by the bank’s sell-off, with shares plunging 30% before pausing on volatility this Friday.

“SVB’s institutional challenges reflect a larger and more pervasive systemic problem: the banking industry is sitting on a ton of underperforming assets that, thanks to the last year of rate hikes, are now underwater and sinking,” wrote Konrad Alt, co-founder of the Klaros Group.

Alt estimated that the rate increases have “effectively removed approximately 28% of all capital in the banking industry by the end of 2022.”

When interest rates were close to zero, banks loaded up on long-term, low-risk Treasuries. But as the Fed raises interest rates to combat inflation, the value of those assets has fallen, leaving banks with unrealized losses.

– ‘s Matt Egan contributed to this report