Silicon Valley Bank’s four-decade run as the tech world’s preferred lender came to sudden end Friday after the feds shut down the embattled firm due to liquidity fears.
Founded in 1983, the Santa Clara, Calif.-based institution provided banking services and took deposits for Silicon Valley startups, venture capital firms and tech heavyweights.
Though boring by Silicon Valley’s usual standards and little-known outside business circles, the bank played a critical role in supporting the tech sector during its recent boom in valuations.
The bank was in talks to sell itself on Friday after efforts to raise outside capital failed. But by Friday afternoon, the feds had shuttered SVB entirely and placed its assets under the control of the Federal Deposit Insurance Corp.
SVB spooked investors after disclosing this week that it had taken a $1.8 billion hit from a $21 billion fire sale of its bond holdings. The bank faced a cash crunch due to surging interest rates and a recent meltdown in the tech sector led many customers to pare their deposits.
Shares of SVB Financial, the bank’s parent, had plunged by a whopping 60% on Thursday. The stock was down by another 60% in premarket trading Friday until being halted.
Here’s what to know about SVB’s collapse.
What is Silicon Valley Bank?
A prominent tech lender, SVB ranked as the 16th-largest bank in the US prior to its collapse into FDIC receivership, according to the Federal Reserve.
The bank catered primarily to tech startups and investors active in the sector.
“SVB offers financial and banking services to help, as you capitalize on business opportunities, raise capital, protect equity, manage cash flows and access global markets,” a message on the bank’s website says.
The bank had $209 billion in assets as of Dec. 31, 2022. SVB’s collapse is the second-largest bank failure in history, trailing only that of Washington Mutual Inc., and the largest of its kind since the 2008 financial crisis.
Why was Silicon Valley Bank shut down?
Regulators were forced to shut down SVB to protect its depositors after a run on the bank ensued this week. Investors scrambled to withdraw their money following warnings from Peter Thiel’s Founders Fund and other tech sector giants.
Who are Silicon Valley Bank’s customers?
Silicon Valley Bank was a favorite lender among tech startups prior to its downfall.
The firm’s website notes that SVB “bank[s] nearly half of all US venture-backed startups, and 44% of the US venture-backed technology and healthcare companies that went public in 2022 are SVB clients.”
Notable firms listed as SVB customers include Pinterest, ZipRecruiter and Shopify.
Who leads Silicon Valley Bank?
Greg Becker has served as SVB’s president and CEO since 2011. He first joined the bank in 1993 and held various leadership roles before taking the top gig, according to SVB’s website.
As The Post reported, Becker tried to quell investor concerns with a last-minute conference call on Thursday — to no avail.
“My ask is to stay calm because that’s what is important,” Becker said during a conference call with investors on Thursday. “We have been long-term supporters of you — the last thing we need you to do is panic.”
Is Silicon Valley Bank FDIC-insured?
Silicon Valley Bank is FDIC-insured. The FDIC formally took control of its assets on Friday after the bank was shut down by the California Department of Financial Protection and Innovation.
“To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB),” the FDIC said in a statement. “At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.”
Insured depositors will have access to their insured deposits by Monday morning March 13, according to the FDIC. Insurance, however, is capped at $250,000. Uninsured deposits totaled a whopping $151 billion at the end of 2022, according to public filings.
In an interview with Bloomberg on Friday, ex-Treasury Secretary Larry Summers said SVB’s implosion shouldn’t pose a systemic risk to the US financial system as long as depositors are made whole.
“I don’t see — if this is handled reasonably, and I have every reason to think that it will be — that this will be a source of systemic risk,” Summers said.
Uninsured depositors will receive an advance dividend within the next week, as well as 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,” the feds added.
Is Silicon Valley Bank’s collapse a contagion event?
It’s still unclear how SVB’s downfall will impact the broader economy. Other bank stocks slumped on word that the FDIC had taken over the firm.
“Big Short” investor Michael Burry likened SVB’s collapse to that of scandal-ridden Enron, while hedge fund billionaire Bill Ackman suggested the federal government should bail out the bank.
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