The United States federal government took control of Silicon Valley Bank, a financial institution used by half of the venture-backed technology and life science companies in America.
This is the second largest bank failure since Washington Mutual in 2008.
Silicon Valley Bank is the 16th largest bank in the nation with roughly $209 billion in total assets and $175 billion in deposits as of December 2022. It was closed by the California Department of Financial Protection and Innovation on March 10.
All of the deposits made to SVB were transferred to a new bank – the Deposit Insurance National Bank of Santa Clara – created by the Federal Deposit Insurance Corporation (FDIC), which says the bank’s current deposit total was undetermined.
“The FDIC as receiver will retain all the assets from Silicon Valley Bank for later disposition. Loan customers should continue to make their payments as usual,” FDIC said in a statement.
Deposits are only insured up to $250,000. The FDIC says those with uninsured deposits will receive an advance dividend by March 13. Normal banking hours and online services are also set to resume on March 13.
The FDIC noted the last bank it insured that closed was the Almena State Bank in Almena, Kansas, on Oct. 23, 2020.
Based in Santa Clara, California, the SVB had 17 branches in California and Massachusetts. The bank was founded on Oct. 17, 1983. The institution gained popularity in the tech industry as it was willing to work with start-ups despite their inherent risk. On March 9, shares of SVB dipped by 60%. Shares continued to fall the following morning until sales were ultimately halted.
“There are recent developments that concern a few banks that I’m monitoring very carefully, and when banks experience financial loss it is and should be a matter of concern,” Treasury Secretary Janet Yellen told members of the House of Representatives on Friday, per NBC News.
According to Bloomberg News, the San Francisco-based venture capital fund – which was founded by Peter Thiel – had advised companies to pull their money from the SVB on March 9. The Founders Fund cited concerns about the bank’s financial stability.
On the same day, Chief Executive Officer of SVB Greg Becker asked its clients to “stay calm” on a conference call.
“The bank, which was in a liquidity crisis, had been scrambling to shore up its finances,” reports Market Watch. “On Wednesday Silicon Valley Bank said it had taken ‘strategic actions’ to strengthen its financial position, which included a $21 billion sale of its securities portfolio at a loss of $1.8 billion.”
SVB’s failure has shocked the technology sector, with some analysts predicting additional financial turbulence in the near future.
“No bank understands start-ups and tech the way they do,” said Antoine Nivard, co-founder and general partner at Blank Ventures. “They have a 40-year reputation earned the hard way built on the most extensive network of insider relationships with Silicon Valley’s most important players.”