Silicon Valley Bank's fall, the greatest since the 2008 financial crisis, left billions stranded

 

The Federal Deposit Insurance Corporation currently has jurisdiction over around $175 billion in client deposits as a result of Silicon Valley Bank's liquidation.

The failure of Silicon Valley Bank on Friday, which was well-known for funding some of the top technological firms, sent investors and depositors into a frenzy. Also, the shutdown has caused today's market declines on a global scale.

SVB Financial Group, a startup-focused lender, had a dramatic collapse on Friday that rocked the world markets and left billions of assets belonging to businesses and investors stranded. Its failure was the greatest bank failure since the 2008 financial crisis.

On Friday, the Federal Deposit Insurance Corporation (FDIC) was named receiver for the bank's assets and California banking regulators dissolved the institution, which operated under the name Silicon Valley Bank.

The FDIC said that Silicon Valley Bank's main office and all of its branches would reopen on March 13 and that all insured depositors will have complete access to their protected savings by Monday morning.

However, according to the FDIC, 89% of the bank's $175 billion in deposits were not insured as of the end of 2022, and it is still unclear what will happen to them.

According to persons familiar with the situation who asked to remain anonymous because the specifics are classified, the FDIC is reportedly rushing to locate another bank over the weekend that is ready to combine with Silicon Valley Bank. The sources stated that while the FDIC wants to put together such a merger by Monday to protect unsecured deposits, nothing is certain.

A request for comment was not immediately answered by an FDIC representative.

Separately, according to the sources, SVB Financial, the parent company of Silicon Valley Bank, is attempting to sell its other assets, which include the investment bank SVB Securities, wealth manager Boston Private, and equity research firm Moffett Nathanson, by working with investment bank Centerview Partners and law firm Sullivan & Cromwell.

According to the sources, these assets can draw rival businesses and private equity groups.

It's uncertain whether any bidder will step forward to purchase these assets without SVB Finance first declaring bankruptcy. SVB Financial's liabilities, according to credit rating agency S&P Global Ratings, would likely compel it to file for bankruptcy on Friday.

Requests for comment to SVB were not answered.

Businesses including streaming gadget maker Roku Inc. and video game developer Roblox Corp. claimed to have hundreds of millions of dollars deposited with the bank. When Roku revealed that the majority of the deposits it had with SVB were uninsured, its shares fell 10% in extended session.

Technology employees who depended on the bank for their salaries were similarly concerned about receiving their money on Friday. In San Francisco, an SVB location displayed a letter that was posted to the door.

LOCKING OF DOORS

The lender had grown to be regarded by the startup community as a dependable source of finance, so the failure shocked everyone.

On Friday, closed doors greeted clients entering the bank. A UK-based customer of the bank informed Reuters that a client dashboard was offline.

Outside of the SVB Santa Clara offices, Dean Nelson, CEO of Cato Digital, was waiting in line in an effort to seek clarification. Nelson reportedly expressed concern about the company's capacity to pay workers and meet bills.

"The bulk of the businesses in this area's primary issue is access to cash. Money is king if you are a startup. The ability to have the runway depends on the cash flow and the workflow."

Greg Becker, the CEO of SVB Finance, posted a video.

the "extremely challenging" 48 hours building up to the bank's failure were acknowledged to staff on Friday. He remarked, "I can't fathom what was going through your mind and worrying, you know, about your work, your future.

The SVB issues show how the market is becoming more vulnerable as a result of the U.S. Federal Reserve and other central banks' drive to battle inflation by ending the age of cheap money. The troubles at SVB soon worsened after the bank announced on Wednesday that it would raise money. Concerns severely impacted the banking industry.

According to an estimate by Reuters, U.S. banks have lost more than $100 billion in stock market value during the last two days, while European banks have lost another $50 billion.

In an effort to soothe investors as their shares plummeted, U.S. lenders First Republic Bank and Western Alliance stated on Friday that their liquidity and deposits were still healthy. Others, like the Commerzbank of Germany, made peculiar pronouncements to comfort investors.

MORE DISCOMFORT

As a result of the occurrence, there is growing worry about the banking industry's hidden risks and its susceptibility to increasing interest rates. Some analysts predict that the sector will experience more pain in the future.

The short sellers are out there and they are going to target every single bank, especially the smaller ones, according to Christopher Whalen, chairman of Whalen Global Advisers, who also warned that there may be a massacre the following week because banks are in difficulty.

At a meeting with banks regulators on Friday, U.S. Treasury Secretary Janet Yellen said she had "complete confidence" in their capacity to handle the issue.

In response to a question on the failure of SVB, the White House stated on Friday that it had faith and confidence in American financial regulators. The head of the Council of Economic Advisers, Cecilia Rouse, stated that the US banking sector was fundamentally stronger than it was in the wake of the 2008 financial crisis.

The atmosphere of rising interest rates is where the downfall of SVB began. Several SVB clients began withdrawing money as increasing interest rates forced the market for initial public offerings for many companies to close and increased the cost of private financing.

SVB liquidated a $21 billion bond portfolio, largely made up of U.S. Treasury bonds, on Wednesday to pay for the redemptions. The company also announced plans to sell $2.25 billion in common stock and preferred convertible shares to close the financing gap.

When its stock fell, depositors began to fear about their money. SVB struggled to persuade its venture capital clients this week that their money was secure. Sources claim that the bank sought to look at other possibilities, including a sale, before authorities intervened and shut the firm down on Friday when the falling stock price rendered their capital increase unworkable.

On October 23, 2020, Kansas' Almena State Bank became the last FDIC-insured institution to shut.