But the gossipy nature of Silicon Valley, and the fact that so many of these firms are entwined, made the possibility of a bank run higher for SVB than it was for other places. Right now, rumors are flying in WhatsApp groupchats full of founders scrambling for cash. I suspect, too, that we’ll start seeing scammers attempting to target panicky technology brothers, to extract even more cash from them. Now, recall, another bank called Silvergate had just collapsed (for crypto reasons). So when Silicon Valley Bank made this announcement on March 8th, people bolted. Peter Thiel’s Founder’s Fund advised its portfolio companies to pull out, ultimately yanking millions.
“At the time of closing, the amount of deposits in excess of the insurance limits was undetermined,” it said. SVB shares declined swiftly, plunging from $267.8 billion at 4 pm on March 8 to $106 billion 24 hours later. The bank was among the biggest in the U.S. banks in terms of assets. But as panicked customers rushed to SVB branches and crashed the bank’s site once it became apparent that it was in trouble, many began to wonder if their money was safe where it was deposited. Before last week, there was little reason to suspect that you couldn’t withdraw as much money from your bank account as you’d like at any given time.
- Instead, the money will come from the FDIC, which is the agency tasked with insuring bank deposits.
- March 14 – Bank stocks bounced back in early trading, erasing much of the losses from a day prior.
- That didn’t bode well for the bank when crypto plunged as a result of FTX’s collapse last year.
That was the immediate cause of death for the most systemically and symbolically important bank in the tech industry, but to get to that point, a lot of other things had to happen first. Under the program, the Federal Reserve will allow distressed banks to borrow funds on favorable terms directly from the Fed instead of generating cash by selling underwater securities, as Silicon Valley Bank had done. Those funds will equip banks to pay depositors who may want to quickly pull out funds amid the turmoil. “I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely that this kind of bank failure will happen again and to protect American jobs and small businesses.” Billionaire tech mogul Peter Thiel is seen as having accelerated SVB’s fall after talk circulated Thursday that his Founders Fund venture capital firm asked its companies to move their funds. Nearly all banks are protected by FDIC insurance, which covers up to $250,000 per depositor per account ownership category.
The collapse of Silicon Valley Bank in March 2023 represents the largest bank failure since the financial crisis of 2008. And given the already-present fears of a recession, the collapse further shook consumer confidence in the economy. Silicon Valley Bank provided business banking services for companies at every stage, but it was particularly well-known for serving startups and venture-backed firms.
What does this mean for the banking system, and just how worried should I be about my bank?
But that announcement spooked the bank’s clients, who got worried about SVB’s viability, and then proceeded to withdraw even more money from the bank — a textbook definition of a bank run. Regulators announced the takeover after what was effectively a run on the bank. Depositors rushed to withdraw their money amid fears SVB wouldn’t be able to meet redemption requests.
In response, the U.S. government took rapid and extraordinary steps to protect the financial system. Wells Fargo analyst Shaw also said other banks were hit by panic selling. “We do not believe there is a liquidity crunch facing the banking industry.” Bank analysts at Morgan Stanley said in a note “the funding pressures facing” Silicon Valley Bank “are highly idiosyncratic and should not be viewed as a read-across to other regional banks.”
The bank itself claimed to bank for nearly half of all US venture-backed startups as of 2021. It’s also a banking partner for a lot of the venture capital firms that fund those startups. SVB calls itself the “financial partner of the innovation economy.” All that basically means it’s tightly woven into the financial infrastructure of the tech industry, especially startups.
State Medicaid offices target dead people’s homes to recoup their health care costs
Earlier this week, Silvergate, a California-based bank that caters to the cryptocurrency industry, announced plans to unwind its operations. People walk through the parking lot at the Silicon Valley Bank headquarters in Santa Clara, Calif., on March 10, 2023. It was a collapse that sent shockwaves across the banking industry, hammering shares of other smaller and regional lenders. Brad Hargreaves, a startup founder who previously served on boards of companies that did business with SVB, said the bank was unusual in that often played a dual role as corporate and personal lender to CEOs. Silicon Valley Bank, one of the leading lenders to the tech sector, was shut down by regulators Friday over concerns about its solvency. This meant that Silicon Valley Bank was left in the lurch when the Federal Reserve, looking to combat rapid inflation, started raising interest rates.
Before the shutdown, some banking analysts dismissed concerns about a potential “contagion” stemming from SVB’s problems that could unsteady the banking sector — though without ruling out the possibility that the bank could fail. That appears to have morphed into a self-fulfilling prophecy, with tech titans including Peter Thiel reportedly warning startup founders to reduce their exposure to SVB. By Thursday morning, SVB shares began to see a massive sell-off. Founded in 1983, the bank grew to become the 16th-largest in the U.S, with $210 billion in assets. Over the years, according to reports, its client list grew to include some of the biggest names in consumer tech like Airbnb, Cisco, Fitbit, Pinterest and Square. Yokum added there could be more trouble ahead as the Fed continues to increase interest rates in an attempt to cool down the economy and bring down inflation, especially if it does so aggressively.
Depositors in Silicon Valley Bank, a relatively small group made up primarily of venture capital firms and tech startups, began to withdraw their funds from the bank. “They really developed a niche that was the envy of the banking space,” says https://www.tradebot.online/ Jared Shaw, a senior analyst at Wells Fargo. “They are able to provide all the products and services any of these sophisticated technology companies, as well as these sophisticated venture capital and private equity funds, would need.”
What does this mean for other banks?
Signature Bank, a New York-based financial institution that became a big lender in the crypto industry, was ordered to close over the weekend. The bank was part of only a handful of financial institutions allowing customers to deposit crypto assets. Separately, the Fed said it will provide financing by offering loans of up to a year to eligible banks and other financial institutions. The move is intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole. It’s been a tumultuous few days for banks since the now-shuttered Silicon Valley Bank announced Wednesday it had suffered a $1.8 billion after-tax loss and urgently needed to raise more capital to quell depositors’ concerns. As a result of the Silicon Valley Bank collapse, the government announced the Bank Term Funding Program (BTFP), a program authorized by the Federal Reserve that offers loans to banks, credit unions, and other deposit institutions.
So while one very likely outcome is that the uninsured depositors will eventually be made whole, the problem is that right now they have no access to that money. On Sunday, the Treasury Department announced protections for depositors at SVB and Signature Bank, assuring depositors they’ll have access to their funds on Monday; however, shareholders and unsecured debtholders are not covered by the plan. March 12 – Escalating the financial risk, New York-based Signature Bank shuttered at the order of state officials. The bank, which had recently welcomed cryptocurrency deposits, fell prey to fears of a bank run among those who held risky assets. Since the bank is FDIC-insured, depositors are guaranteed protection of up to $250,000 in funds for different types of accounts held.
History of Silicon Valley Bank
SVB Financial was in talks to sell itself after attempts of raising capital failed, CNBC reported, though plans to find a buyer were abandoned. First Republic Bank dropped 65% before trading was halted; Charles Schwab, the eighth-largest U.S. bank, dropped 11%. March 13 – In a morning address from the White House, President Biden sought to tamp down concern about the potential spread of the crisis across the financial system. Below is a timeline of the Silicon Valley Bank collapse, the spread of concern across the financial system and the effort to contain the economic fallout.
For £1 ($1.21), in a deal that excludes the assets and liabilities of SVB U.K.’s parent company. The Fed also cited the 2018 change in Fed supervisory standards and the impact of social media with a highly networked and concentrated depositor base as contributing factors. To help you understand what exactly went wrong with Silicon Valley Bank, we’ll dive a bit deeper into the history of the bank, the events leading up to the collapse, and what it means for depositors, investors, and the economy in general.
A customer stands outside of the shuttered Silicon Valley Bank headquarters in Santa Clara, Calif., on March 10, 2023. The lender was taken over federal regulators on Friday, marking one of the largest bank failures since the 2008 Global Financial Crisis. Silicon Valley Bank met its demise largely as the result of a good old-fashioned bank run after signs of trouble began to emerge in the second week of March. The bank takes deposits from clients and invests them in generally safe securities, like bonds.
Leave a Reply