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#AceNewsDesk – Banking regulators in California have taken over and closed the troubled tech lender Silicon Valley Bank, in the biggest US bank failure since the global financial crisis.

The California Department of Financial Protection and Innovation closed the bank on Friday and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.

Shares of the bank were halted on Friday, after they tumbled 66 per cent in pre-market trading.

Professional investors say the collapse of Silicon Valley Bank represents a contagion risk to the global financial system.

“There’s going to be a lot of fallout from this,” investor and author Danielle Ecuyer said.

She said it was “extremely lucky” the regulators move in late on Friday because it gives analysts 48 hours to work out if this has the potential to be another “Lehman event”.

“It’s really good it’s a Friday [in the US].”

Silicon Valley Bank is the first FDIC-insured bank to fail in more than two years, the last being Almena State Bank in October 2020.

The bank’s failure came with incredible speed, with some industry analysts on Friday suggesting it was a good company and still likely a wise investment.

Silicon Valley Bank executives were looking to raise capital early on Friday or find additional investors.

But trading in its shares was halted before the opening bell due to extreme volatility.

The collapse of Lehman Brothers in 2008 sparked a worldwide credit crunch that contributed to the global financial crisis.

Ms Ecuyer said she didn’t think the collapse of Silicon Valley Bank was on par with the failure of the Wall Street mega-bank but it was too early to tell whether the flow-on effects of the bank’s demise would lead to a widespread financial rout.

Half of US venture capital firms are backed by this company — it has very deep tentacles into existing start-up companies across the US,” she said.

She says at the core of the bank’s collapse is its investments in the US debt market.

Silicon Valley Bank invested its customer deposits into the US debt market (bonds), and that investment has soured badly as US interest rates have risen.

“The value of the mortgage-backed securities [bonds] has been plummeting in value as interest rates have risen.”

It’s your classic case of the bank investing all its deposits in a [non-performing asset],” Ms Ecuyer said.

Notably, the FDIC did not wait until the close of business to seize the bank, as is typical in an orderly wind-down of a financial institution.

The FDIC could not immediately find a buyer for the bank’s assets, signalling how fast depositors had cashed out.

The bank’s deposits will now be locked up in receivership.

Silicon Valley Bank had about $US209 billion ($318 billion) in total assets and about $US175.4 billion in total deposits, as of December 31, 2022.

The startup-focused lender had 17 branches in California and Massachusetts, the FDIC said: The main office and all branches of Silicon Valley Bank will reopen on March 13 and all insured depositors will have full access to their insured deposits no later than Monday morning, according to the FDIC.

Customers have rushed to retrieve their deposits in the knowledge it is only going to get harder for the bank to pay up in the future — hence why the regulators have had to move in to stop a bank run.

Unfortunately, the bank is on the wrong side of the decisions being made by the mammoth US Federal Reserve — and its decision on interest rates.

“The US Federal Reserve does not want to have to deal with a financial crisis that would force it to ease monetary,” Ms Ecuyer said.

Silicon Valley Bank: Regulators take over as failure raises fears by Natalie Sherman & James Clayton: BBC News

US regulators have shut down Silicon Valley Bank (SVB) and taken control of its customer deposits in the largest failure of a US bank since 2008.

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.

Investor flight

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.

Silicon Valley Bank (SVB) offices were shut as customers sought their funds

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.

Regulator response

The collapse came after SVB said it was trying to raise $2.25bn (£1.9bn) 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% 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.

Silicon Valley Bank, led by chief Gregory Becker, catered to the tech industry and expanded rapidly over the last decade

As well as being a major blow to the tech industry, the collapse of SVB has raised concerns about the wider risks facing banks, as rapid increases in interest rates hit bond markets. 

Central banks around the world – including the US Federal Reserve and the Bank of England – have sharply raised borrowing costs over the last year as they try to curb inflation. 

But as rates rise, the value of existing bond portfolios typically declines.

Those falls mean many banks are sitting on significant potential losses – though the change in value would not typically be a problem unless other pressures force the firms to sell the holdings. 

Shares in some major US banks recovered on Friday, but the sell-off continued to hit smaller firms, forcing trading halts of names such as Signature Bank and others. 

The tech-heavy Nasdaq ended the day down 1.7%, while the S&P 500 dropped 1.4% and the Dow closed 1% lower.

Major European and Asian indexes also closed lower, with the FTSE 100 down 1.6%. 

Alexander Yokum, equity research analyst at CFRA, said banks that specialise in single industries are seen as vulnerable to rapid withdrawals, like the one that hit SVB.

“Silicon Valley Bank would not have lost money if they hadn’t run out of cash to give back to their customers,” he said. “The issue was that people wanted money and they didn’t have it – they had it invested and those investments were down.”

“I know there’s a lot of fear, but it’s definitely company-specific,” he said.

“The average Joe should be fine,” he added, but he said tech firms would likely find it even harder to raise money. “It’s not good,” he said.

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