Regulators take over as big Silicon Valley Bank collapses
NEW YORK-US regulators have shut down Silicon Valley Bank [SVB] and taken control of its customer deposits in the largest failure of a US bank 2008 financial crisis.
The moves came as the firm, a key tech lender, was scrambling to raise money to plug a loss from the sale of assets affected by higher interest rates.
Its troubles prompted a rush of customer withdrawals and sparked fears about the state of the banking sector.
Officials said they acted to “protect insured depositors”.
Silicon Valley Bank faced “inadequate liquidity and insolvency”, banking regulators in California, where the firm has its headquarters, said as they announced the takeover.
The Federal Deposit Insurance Corporation [FDIC], which typically protects deposits up to $250,000, said it had taken charge of the roughly $175bn (£145bn) in deposits held at the bank, the 16th largest in the US.
Bank offices would reopen and clients with insured deposits would have access to funds “no later than Monday morning”, it said, adding that money raised from selling the bank’s assets would go to uninsured depositors.
With many of the firm’s customers in that position, the situation has left many companies with money tied up at the bank worried about their future.
“I’m on my way to the branch to find my money right now. Tried to transfer it out yesterday didn’t work. You know those moments where you might be really screwed but you’re not sure? This is one of those moments,” one start-up founder told the BBC.
Another founder of a healthcare start-up said: “Literally three days ago, we just hit a million dollars in our bank account… And then this happens.”
He managed to get the money wired to a different 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 minutes after me, and it’s not transferred.”
“It was a crazy situation,” he said.
The collapse came after SVB said it was trying to raise $2.25bn [£1.9bln] to plug a loss caused by the sale of assets, mainly US government bonds, which had been affected by higher interest rates.
The news caused investors and customers to flee the bank. Shares saw their biggest one-day drop on record on Thursday, plunging more than 60 percent and fell further in after-hours sales before trading was halted.
Concerns that other banks could face similar problems led to widespread selling of bank shares globally on Thursday and early Friday.
Financial shares hit by Silicon Valley Bank slump
Speaking in Washington on Friday, US Treasury Secretary Janet Yellen said she was monitoring “recent developments” at Silicon Valley Bank and others “very carefully”.
She later met with top banking regulators, where the Treasury Department said she expressed “full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient”.
Janet Yellen expressed confidence in the resilience of the banking sector
SVB did not respond to a request for comment.
A crucial lender for early-stage businesses, the company is the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year.
The firm, which started as a California bank in 1983, expanded rapidly over the last decade. It now employs more than 8,500 people globally, though most of its operations are in the US.
But the bank has been under pressure, as higher rates make it harder for start-ups to raise money through private fundraising or share sales, and more clients withdrew deposits, moves that snowballed this week.
In Silicon Valley the reverberations from the collapse were widespread as companies faced questions about what the collapse meant for their finances.
Even businesses without direct business were affected, like customers of Rippling, a firm that handles payrolls software and had used SVB. It warned that current payments may face delays and said it was switching its business to another bank.
SVB’s UK subsidiary said it will be put into insolvency from Sunday evening.
The Bank of England said Silicon Valley Bank UK would stop making payments or accepting deposits in the interim and the move would allow individual depositors to be paid up to £85,000 from the UK’s deposit insurance scheme.
“SVBUK has a limited presence in the UK and no critical functions supporting the financial system,” the BoE added.
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