Silicon Valley Bank, nation’s 18th largest, shut down

21
989

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.

21 COMMENTS

  1. And so the latest financial crisis finally and unequivocally begins.
    There is nothing unique about Silicon Valley Bank’s situation — they are just the first to officially fall. But something tells me that they will be FAR from the only bank to do so.
    .
    Got gold?

  2. I’ve seen this before. Bush 41 bailed out an irresponsible industry without securing any benefits for the people (US taxpayers) who saved them.

    If this is the start of something, zero federal assistance to badly run businesses unless it’s on our terms.

  3. The music stopped and there wasn’t a chair for them. I’d be curious who the early withdrawers were.

  4. “The FDIC will pay uninsured depositors an advance dividend within the next week.”

    What is the definition of “advance dividend”?

  5. Tomorrow will be interesting, to say the least! Analysts are predicting bank stocks will be down 30 to 40 percent and bank runs are likely. It is a terrible time to have a corrupt and demented President at the helm of the country.

  6. The reality is that this financial disaster started at the end of 2019 and the COVID BS was created in order to prop it up long enough to get a handle on it. Unfortunately, the playbook is the same one they used in 2008 and it isn’t going to work this go round. They just kicked the can down the road and here we are in a bigger morass of financial breakdown than 2008. It doesn’t take a brain surgeon to see Biden admin is colluding with China. Why else would Cummins and other large corporations be making huge manufacturing investments in China? What you are being shown is not the reality you are living, it is a charade to hide what is really going to affect your lives.

  7. I am sure I do not have all the information on, or a complete understanding of, this four day old situation. But from what I have read, this does not seem like a repeat of 2008; SVB assets, largely Federal bonds, were in line with Fed requirements. These were probably carried on the books at face value. As interest rates have gone up the market value of the low interest bearing bonds went down. In order to generate cash to pay out depositors needing operating capital for salaries, rent, etc. SVB had to sell some of their bonds for less than they paid for them, meaning they had to take a disproportionate amount off assets off their balance sheet. I am mindful that many commerical banks require large borrowers to run all of their money through the lender’s bank. E.g., if they give you a mortage to build a store and acquire inventory they want you to deposity your cash, and reciepts, in their bank. So, a business with a $100M mortgage from SVB grossing $4M a week, can’t spread the $4M around in $250K chunks to other banks.
    So when these depositors went to pull some of their cash out to meet payroll, for example, SVB had to sell bonds. (over simplification for illustration purposes). Second, I am not sure I would blame Powell/Fed policy on this. Congress and the White House dumped trillions of dollars into the encomy due to Covid, state level executives shut down thousands of businesses (factories and other entities making stuff) resulting in a flood of dollars chasing scarce goods, i.e., inflation. The Fed is intentially putting water on the fire set by arsonists. I would not blame the Fed.
    I would blame, SVB leadership and Board of Directors for not recognizing the impact of the Fed’s clearly communicated intent (and subsequent action) to raise interest rates, thus devaluing the market value of SVB held govt. treasuries. I would also blame Federal bank regulators who didn’t see this simple and obvious change to the asset/liabilities balance sheets of regulated banks coming. I would not, as the President is doing, blame this on the prior administration. Biden has had 2+ years to fix this…if in fact it was a regulatory defect. Finally, I have little sympathy for the potential loss of depositors with more than the FDIC guarantee of $250K. If they were non-borrowers of SVB (therefore not required by SVB to deposit their money with SVB) they were attracted to the higher interest rates being offered for “jumbo” deposits – they were well aware they were being compensated for putting their money in uninsured accounts. Greed, not ignorance is why they might lose. No sympathy either for the borrowers (startups). While they might not have had a choice of where to run their cash, they did have a choice of lenders; either other banks willing to take on their risk with a commensurate higher interest rate, or from private equity funding…again at a likely higher costs. More facts will come out on this as time goes on, so I may change my view in response. Sorry for the long post. It is a complicated issue, not easily explained by a few noun phrases.

    • Thank you for your clear and logical comment – a rarely-spotted species here on MRAK. There are those of us who try to elevate the level of discussion on the site, but alas, without much success.

Comments are closed.