VC firms, start-up companies caused quick fall of SVB following mass withdrawals on Thursday
The California Department of Financial Protection and Innovation announced on Friday that the Silicon Valley Bank (SVB) would be shut down with the FDIC in charge of liquidation, officially ending one of the largest banks in the country and one of the premier banks of Venture Capital firms and start-up companies.
Founded in 1983, SVB quickly became a favored bank of startup companies, with the bank quickly growing due to it’s model of catering closely with venture capital firms and retaining the business of successful start-ups. Offices and branches were opened across Silicon Valley and the Bay Area, and by 1988 the company held it’s initial public offering on the stock market. Companies like Cisco Communications continued to grow while under the bank in 1995 the bank moved from San Jose to Santa Clara into a much larger headquarters.
Over the next few decades, new branches and officers opened across the U.S. and around the world, eventually expanding into India, the United Kingdom, Israel, Canada, China, Germany, Hong Kong, Ireland, Denmark, and Sweden. SVB also proved to be resilient in the eyes of many banking there in the 2000’s, surviving both the dot-com bubble and the Great Recession. By the early 2020’s, SVB was continuing to consolidate smaller banks and had become one of the top 20 banks in the entire country, with assets totaling around $209 billion.
Despite their high position, cracks formed in SVB early this year. As the bank had billions tied up with U.S. securities, changes caused by inflation led to a $1.8 billion dollar loss on them. Needing funds, SVB announced a stock sale on Thursday, causing shares to fall 62%. Venture capitalist firms, once loyal to the bank, panicked and immediately withdrew from the bank, causing a bank run and leaving SVB on life support by the end of the day. With many others poised to pull money out on Friday, and pre-trading showing another 69% loss, federal regulators quickly froze all trading of the stock. The news turned out to be even more grim at the start of trading on Friday, with the California Department of Financial Protection and Innovation announcing the shut down of the bank due to inadequate liquidity and insolvency.
The end of Silicon Valley Bank
In an announcement, the Federal Deposit Insurance Corporation (FDIC) said that they would be the official receivership of the bank. All current customers will have access to insured deposits on Monday, with all uninsured depositors to receive a certificate for all remaining funds. The FDIC will also temporarily reopen all branches and offices beginning on Monday under the name of the Deposit Insurance National Bank of Santa Clara (DINB), allowing customers to conduct all needed business.
“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,” the FDIC said in a statement on Friday. “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.”
The closure of SVB was the largest bank closure in the U.S. since Washington Mutual was shut down during the Great Recession in 2008. Many venture capitalist firms and start-up companies with assets still in SVB are likely to continue pulling out of the bank next week, with many experts now being worried about what the failure of SVB could mean for the tech industry in the area.
“You know, SVB was always one of those drivers here,” explained Parker Mallory, a former financial advisor to VC-funded start-up companies, to the Globe on Friday. “They were always a mainstay and known as a solid financial institution in which companies could start from.”
“It just fell very quickly. The last several days there have been tweets from everyone saying that the sky was falling and to pull out now. I had to silence my phone yesterday because it was dinging me so much from people saying that they had to get out. SVB always backed the more riskier companies and investments, and that didn’t exactly help their situation.”
“And now the FDIC is in charge. When they become a receiver, you know you’re done. They’re going to sell everything to pay back customers at SVB. The stock is also delisted now, and the bank failure has been continuing to hurt stocks all day. This reminds me of when Washington Mutual fell and when Bear Stearns fell. No one is sure about anything right now. I mean, the FDIC is acting accordingly which is good, but it is still all so odd. SVB was just such an important part to the VC world out here. It was the first choice bank for many. And it being gone now, well, it’s a gut punch. And with so many layoffs happening in the tech industry in the last several months, SVB’s closure is only going to worry people more.”
Fallout from the closure is expected to continue next week as more VC firms and companies continue to remove money from the bank once the FDIC temporarily reopens branches.
Original Article: https://californiaglobe.com/fr/state-regulators-shut-down-silicon-valley-bank/
