The Silicon Valley Bank failure, the biggest since the 2008 financial crisis, left billions stranded.
On Friday, the startup-focused lender SVB Financial Group experienced an abrupt collapse that rocked global markets and left billions of dollars belonging to businesses and investors stranded. This failure made SVB Financial Group the biggest bank to fail since the 2008 financial crisis.
The bank, which operated under the name Silicon Valley Bank, was shut down by California banking authorities on Friday and the Federal Deposit Insurance Corporation (FDIC) was named as receiver for a later sale of its assets.
The Santa Clara-based lender, which had approximately $209 billion in assets at the close of the previous year, was ranked as the 16th largest in the United States. The details of the tech-focused bank’s sudden demise were unclear, but it appeared that the Fed’s aggressive interest rate increases over the previous year, which had severely tightened financial conditions in the start-up sector where it was a prominent participant, were to blame.
The bank lost $1.8 billion on Treasury bonds whose values were sabotaged by the Fed rate increases as it sought to raise capital to counteract fleeing deposits.
The failure of Silicon Valley Bank is the biggest since the collapse of Washington Mutual in 2008, a pivotal event that set off a financial crisis that hampered the economy for years. The 2008 financial crisis led to stricter regulations in the US and abroad.
Since then, regulators have imposed stricter capital requirements for American banks in an effort to ensure that individual bank failures won’t have a negative impact on the economy and broader financial system.
The FDIC announced that Silicon Valley Bank’s main office and all of its branches will reopen on March 13 and that all insured depositors will have complete access to their insured accounts by Monday morning.
However, according to the FDIC, 89% of the bank’s $175 billion in assets were not insured as of the end of 2022, and it is still unclear what will happen to them.
According to people familiar with the situation who asked to remain anonymous because the specifics are confidential, the FDIC is reportedly rushing to find another bank over the weekend that is ready to merge with Silicon Valley Bank. The sources added that while the FDIC expects to put together such a merger by Monday to protect unsecured deposits, nothing is guaranteed.
BUYERS SOUGHT
Separately, according to the sources, Silicon Valley Bank’s parent company, SVB Financial, is attempting to sell its other assets, which include the investment bank SVB Securities, wealth manager Boston Private, and equity research firm MoffettNathanson, by working with investment bank Centerview Partners and law firm Sullivan & Cromwell. According to the sources, these assets might draw rival businesses and private equity companies.
It’s uncertain whether any buyer will come forward to purchase these assets without SVB Financial first declaring bankruptcy. SVB Financial’s liabilities, according to credit rating firm S&P Global (NYSE:SPGI) Ratings, will likely force the company into bankruptcy on Friday.
