Google News
In what is being described as the biggest US bank failure since 2008, US regulators have shut down Silicon Valley Bank (SVB) and taken control of its customers' deposits. The announcement came as the company, a key technology lender, struggled to raise cash to cover a loss on asset sales that was compounded by higher interest rates.
Protecting Insured Depositors
Banking regulators in California, where the company is headquartered, said in their announcement that the Silicon Valley Bank faced "inadequate liquidity and insolvency." The Federal Deposit Insurance Corporation (FDIC), which normally protects deposits of up to $250,000, said it had taken control of about $175bn in deposits held at the bank, making it the 16th largest in the US.
Panic Among Customers and Start-Up Founders
The bank's problems triggered a rush of customer withdrawals and intensified fears about the state of the banking sector. One start-up founder told the BBC, "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." Another health start-up founder said, "Literally three days ago, we just hit a million dollars in our bank account...
And then this happens." He managed to transfer the money to another account 40 minutes before the deadline, but added, "It was a crazy situation."
Impact on the Banking Sector
Shares of major US banks rallied on Friday, but the sell-off continued to hit some smaller companies.
Alexander Yokum, an equity research analyst at CFRA, said banks that specialize in individual industries are considered vulnerable to rapid withdrawals like the one that hit SVB. He said, "Silicon Valley Bank would not have lost money if they hadn't run out of cash to give back to their customers.
The issue was that people wanted money and they didn't have it - they had it invested and those investments were down."