Silicon Valley Bank, the prestigious venture capital bank for Big Tech and biotech growth companies, has been closed by federal and state banking regulators.
The California Department of Financial Protection and Innovation closed down the bank on Friday, according to the Federal Deposit Insurance Corporation.
It was a classic bank run. Account holders had started pulling their money out, and the bank didn’t have the liquidity to cover all the withdrawals.
Silicon Valley Bank came to Alaska in 2019, with a group of cleantech investors and entrepreneurs to get to know the state as an investment opportunity, and to learn more about the startup tech group called Launch Alaska. The bank wrote about Alaska as an investment opportunity at its website.
FDIC said on Friday that insured deposits will be accessible no later than Monday morning, when the bank will reopen under federal control. The standard insurance from FDIC covers up to $250,000 per depositor, per bank. But SVB has massive accounts worth millions that belong to venture capital investors. Many of these accounts are greater than the insured ceiling.
It’s a crisis caused, in part, by the Federal Reserve, which is the most powerful economic institution in the world. The Fed has raised interest rates so high that investors and companies are taking money out of banks accounts and putting them into higher-yield U.S. Treasuries and T bills.
The collapse of SVB is a reminder of what happened during and after the real estate bubble of 2007-2010, when the five largest U.S. investment banks, with combined liabilities or debts of $4 trillion, either went bankrupt or were taken over by other institutions. Some of the largest were bailed out by the U.S. government. For example, Lehman Brothers went bankrupt, while Goldman Sachs and Morgan Stanley were bailed out. Washington Mutual Savings and Loan became largest bank failure in U.S. history; it had $188.3 billion in deposits when it collapsed.
Silicon Valley Bank has assets of $212 billion and market capitalization of $26.65 billion.
Silicon Valley Bank is also one of the banks used by FTX, the crytocurrency exchange run by the now-indicted Sam Bankman-Fried.
The statement from FDIC today, in its entirety:
Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.
All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.
Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches of Silicon Valley Bank will reopen on Monday, March 13, 2023. The DINB will maintain Silicon Valley Bank’s normal business hours. Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear. Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.
As of December 31, 2022, Silicon Valley Bank had approximately $209.0 billion in total assets and about $175.4 billion in total deposits. At the time of closing, the amount of deposits in excess of the insurance limits was undetermined. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.
Customers with accounts in excess of $250,000 should contact the FDIC toll-free at 1-866-799-0959.
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.
Silicon Valley Bank is the first FDIC-insured institution to fail this year. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.