Silicon Valley Bank Swiftly Collapses After Tech Startups Flee

Silicon Valley Bank became the biggest US lender to fail in more than a decade after a tumultuous week that saw an unsuccessful attempt to raise capital and a cash exodus from the tech startups that had fueled the lender’s rise.

Regulators stepped in and seized it Friday in a stunning downfall for a lender that had quadrupled in size over the past five years and was valued at more than $40 billion as recently as last year.

The move by California state watchdogs to take possession of the bank, known as SVB, and appoint the Federal Deposit Insurance Corp. as receiver adds to the turmoil at smaller lenders caused by the US’s rapid interest-rate increases. Just days earlier, Silvergate Capital Corp. announced it was shutting its bank down, spurring a broader selloff in industry stocks.

Banks were already suffering from the jump in rates that eroded the value of their portfolios, and meanwhile customers in the technology and crypto startup worlds were yanking cash amid a slump in their businesses. In SVB’s case, the turmoil fed on itself as customers worried about its health rushed to withdraw money.

“Bank runs are a lot about psychology. And at this point, it’s very rational to be nervous,” said Saule Omarova, a law professor at Cornell University.

In Washington, the situation prompted a series of discussions among top regulators.

Treasury Secretary Janet Yellen called a meeting Friday with leaders from the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency to discuss developments around SVB. Yellen said in a statement that the US banking system “remains resilient” and the regulators “have effective tools” to address the fallout.

Read More: Yellen Says US Bank System Resilient Amid SVB Fallout Concern

The government is assessing whether it can sell SVB, or parts of it, by Monday, said a person familiar with officials’ conversations, who asked not to be identified speaking about internal deliberations. That’s the day when customers can come to the bank and start taking out the rest of their money.

Treasury representatives didn’t immediately respond to an emailed request for comment.

Source: Bloomberg

Problems mounted for SVB after Peter Thiel’s Founders Fund and other high-profile venture capital firms advised their portfolio companies to pull money from the bank. The calls followed parent company SVB Financial Group announcing that it would try to raise more than $2 billion after a significant loss on its portfolio.

Greg Becker, chief executive officer of Silicon Valley Bank

Photographer: Lauren Justice/Bloomberg

The FDIC said that SVB’s insured depositors would have access to their funds by no later than Monday morning. Uninsured depositors will get a receivership certificate for the remaining amount of their uninsured funds, the regulator said, adding that it doesn’t yet know the amount. In announcing the takeover, the California Department of Financial Protection and Innovation cited inadequate liquidity and insolvency.

Receivership typically means a bank’s deposits will be assumed by another, healthy bank or the FDIC will pay depositors up to the insured limit.

“The FDIC receivership will end the uncertainty about this particular bank,” Omarova said. “But I don’t think that necessarily itself stops people from feeling less safe if they have some kind of exposure to assets or they hold their own money in banks with similar risk profiles.”

WATCH: Silicon Valley Bank was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation as receiver. Bloomberg’s Katherine Doherty reports.

Source: Bloomberg

SVB was founded in 1983 over a poker game between Bill Biggerstaff and Robert Medearis, according to a statement from the bank’s 20th anniversary. Since its start, the firm has specialized in providing financial services to tech startups.

US regulators arrived at the California offices of SVB as the troubled lender struggled to stabilize its finances on Thursday, Bloomberg News reported.

Read More: US Regulators Descend on Silicon Valley Bank to Assess Finances

The bank had about $209 billion in total assets and about $175.4 billion in total deposits at the end of last year, the FDIC said on Friday.

(Updates with Yellen comments in seventh paragraph.)

--With assistance from Max Reyes.

To contact the reporters on this story:
Amelia Pollard in New York at apollard18@bloomberg.net;
Saleha Mohsin in Washington at smohsin2@bloomberg.net

To contact the editors responsible for this story:
Claire Boston at cboston6@bloomberg.net

Jeremy Hill, Ben Bain

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