- By Natalie Sherman & James Clayton
- BBC news
US regulators shut down Silicon Valley Bank (SVB) and seized control of its customer deposits in the biggest failure of a US bank since 2008.
The moves come as the company, a key technology lender, scrambles to raise cash to plug a loss from the sale of assets hit by higher interest rates.
Its troubles prompted a rush of customer withdrawals and fueled fears about the state of the banking sector.
Officials said they acted to “protect insured depositors”.
Silicon Valley Bank faces “insufficient liquidity and insolvency”, banking regulators in California, where the company is headquartered, said as they announced the takeover.
The Federal Deposit Insurance Corporation (FDIC), which usually protects deposits of up to $250,000, said it oversees almost $175bn (£145bn) in deposits held by the bank, the 16th largest in the US .
Bank offices will reopen and clients with insured deposits will have access to funds “no later than Monday morning”, it said, adding that the money obtained from the sale of assets in bank goes to uninsured depositors.
Investor flight
With many of the company’s customers in that position, the situation leaves many companies with cash tied up in the bank worried about their future.
“I’m going to the branch to find my money today. Trying to transfer it yesterday didn’t work. You know those times when you might be crazy but you’re not sure? This is one of those moments,” a startup promoter said. told the BBC.
Another founder of a health care startup said: “Literally three days ago, we just hit a million dollars in our bank account … And then this happens.”
He got the money to another account 40 minutes before the deadline. “It was pending. And then this morning, it was there. But I know other people who did the same thing a few minutes after me, and it wasn’t moved.”
“It’s a crazy situation,” he said.
Regulator response
The collapse came after SVB said it was trying to raise $2.25bn (£1.9bn) to plug losses from selling assets, mainly US government bonds, which have been hit by higher interest rates. rates.
The news caused investors and customers to flee the bank. Shares saw their biggest one-day decline on record on Thursday, falling more than 60% and falling further in after-hours trading before trading was halted.
Concerns that other banks could face similar problems led to widespread selling of bank shares around the world on Thursday and early Friday.
Speaking in Washington on Friday, US Treasury Secretary Janet Yellen said she was watching “recent developments” at Silicon Valley Bank and others “carefully”.
He later met with top banking regulators, where the Treasury Department said he expressed “full confidence in banking regulators to take appropriate action in response and noted that the system of banking remains strong”.
SVB did not respond to a request for comment.
A major lender for early-stage businesses, the company is the banking partner for nearly half of the US venture-backed technology and healthcare companies listed on stock markets in last year.
The company, which began as a bank in California in 1983, has expanded rapidly over the past decade. It currently employs more than 8,500 people worldwide, although most of its operations are in the US.
But the bank is under pressure, as higher rates make it harder for start-ups to raise money through private fundraising or share sales, and many clients withdraw deposits, moves snowballed this week.
In Silicon Valley the reverberations from the collapse are widespread as companies face questions about what the collapse means for their finances.
Even businesses with no direct business were affected, such as customers of Rippling, a company that manages payroll software and uses SVB. It warned that current payments could face delays and said it was moving its business to another bank.
SVB’s UK subsidiary said it would be placed into insolvency from Sunday evening.
The Bank of England said Silicon Valley Bank UK would stop paying or accepting deposits in the interim and the move would allow individual depositors to be reimbursed up to £85,000 from the UK’s deposit insurance scheme.
“SVBUK has a limited presence in the UK and does not have critical functions that support the financial system,” the BoE added.
As well as a major blow to the tech industry, SVB’s collapse has raised concerns about the wider risks facing banks, as rapidly rising interest rates hit bond markets.
Central banks around the world – including the US Federal Reserve and the Bank of England – have raised borrowing costs sharply over the past year as they try to curb inflation.
But as prices rise, the value of existing bond portfolios typically declines.
The falls mean many banks are sitting on huge potential losses – although the change in value is not usually a problem unless other pressures force companies to sell assets.
Shares of some major U.S. banks recovered on Friday, but the selloff continued to hit smaller companies, forcing a trading halt in names like Signature Bank and others.
The tech-heavy Nasdaq ended the day down 1.7%, while the S&P 500 fell 1.4% and the Dow closed 1% lower.
Major European and Asian indices also closed lower, with the FTSE 100 falling 1.6%.
Alexander Yokum, CFRA’s equity research analyst, said banks that specialize in one industry are seen as vulnerable to rapid withdrawals, such as the one hit by SVB.
“Silicon Valley Bank would not have lost money if they had not run out of money to return to their customers,” he said. “The issue is that people want money and they don’t have it – they invest it and the investments fall.”
“I know there’s a lot of fear, but it’s definitely company-specific,” he said.
“The average Joe should be fine,” he added, but he said tech firms are likely to have a harder time raising money. “It’s not good,” he said.