Silicon Valley Bank is seized after historic failure
US regulators have rushed to seize the assets of Silicon Valley Bank, marking the largest failure of a financial institution since Washington Mutual collapsed at the height of the financial crisis more than a decade ago.
SVB, the nation's 16th largest bank, failed after its depositors -- mostly technology workers and venture capital-backed companies -- hurried to withdraw money this week as anxiety over the bank's health spread. It is the second biggest bank failure in US history.
The bank had deep ties to Silicon Valley industries and startups. Y Combinator, an incubator startup that has launched companies such as Airbnb, DoorDash and Dropbox, has referred hundreds of entrepreneurs to the bank.
"This is an extinction-level event for startups," Y Combinator CEO Garry Tan said.
Silicon Valley was heavily exposed to the tech industry but there is little chance of chaos spreading in the broader banking sector as in the months leading up to the recession more than a decade ago. The biggest banks -- those most likely to cause a widespread economic meltdown -- have healthy balance sheets and plenty of capital.
In 2007, the biggest financial crisis since the Great Depression rippled across the globe after mortgage-backed securities tied to ill-advised housing loans collapsed in value. The panic on Wall Street led to the demise of Lehman Brothers, a firm founded in 1847. Because major banks had extensive exposure to one another, it led to cascading breakdown in the global financial system, putting millions out of work.
There has been unease in the banking sector all week and the news of Silicon Valley Bank's distress pushed shares of almost all financial institutions lower on Friday, shares that had already tumbled by double digits since Monday.
Silicon Valley Bank executives were trying to raise capital early Friday and find additional investors. However, trading in the bank's shares was halted before stock market's the opening bell due to extreme volatility.
Shortly before noon eastern, the Federal Deposit Insurance Corporation moved to shutter the bank, not waiting until the close of business. The FDIC could not immediately find a buyer for the bank's assets, signaling how fast depositors had cashed out.
The White House said Treasury Secretary Janet Yellen is "watching closely." The White House sought to reassure people that the banking system is much healthier than it was in the Great Recession.
"Our banking system is in a fundamentally different place than it was, you know, a decade ago," said Cecilia Rouse, chair of the White House Council of Economic Advisers. "The reforms that were put in place back then really provide the kind of resilience that we'd like to see."
Silicon Valley Bank had $209 billion in total assets at the time of failure, the FDIC said. It was unclear how much of its deposits were above the $250,000 insurance limit, but previous regulatory reports showed that much of Silicon Valley Bank's deposits exceeded that limit.
The bank still appeared stable this year, but on Thursday it announced plans to raise up to $1.75 billion in order to strengthen its capital position. That sent investors scurrying and shares plunged 60 per cent. They rocketed lower again Friday before the open of the Nasdaq, where it is traded.