The collapse is considered the biggest bank failure since the 2008 financial crisis
US tech and start-up focused Silicon Valley Bank (SVB) was shut down by regulators on Friday after depositors rushed to withdraw their money amid worries over the bank’s financial health. According to an announcement from the Federal Deposit Insurance Corporation (FDIC), California regulators have taken control of the lender’s deposits and transferred the assets to a newly created entity, the Deposit Insurance Bank of Santa Clara.
SVB, a major bank for venture-backed firms, ranked as the 16th biggest US lender at the end of last year, with about $209 billion in total assets and $175.4 billion in deposits. However, according to market analysts, the lender has been under pressure lately due to fears of a recession, higher interest rates, and a slowdown in the market for initial public offerings. These factors made it harder for start-ups to raise additional cash and led companies to draw down their deposits at SVB and similar lenders.
Earlier this week, the bank announced that it had lost $1.8 billion on asset sales made in an attempt to raise capital to offset deposit outflows, and planned to sell some $2.25 billion in new shares. The announcement, however, sparked more withdrawals. As a result, the bank’s shares plunged 60% on Thursday, and another 60% in premarket trading on Friday. The FDIC was forced to intervene and halt the sales as depositors were withdrawing their money in such a rush that the bank’s insolvency became unavoidable, market experts say.
The FDIC said SVB offices will reopen on Monday so that insured depositors will be able to withdraw deposits. However, according to regulators, 89% of the bank's deposits were not insured, which means that billions of dollars may now be stranded. According to Reuters sources, the agency is currently seeking another bank to merge with SVB to safeguard unsecured deposits.
The collapse of the tech-focused lender and its possible repercussions has been widely discussed on social media. One Twitter user suggested that it should acquire SVB “and become a digital bank,” drawing many comments. They included one from Twitter owner Elon Musk, who wrote that he is “open to the idea.”
SVB's failure is considered the largest collapse in the US banking system since the Washington Mutual implosion, the event that sparked the 2008 financial crisis. SVB’s collapse has already sent shockwaves through European and Asian stock markets, which plummeted on Friday as investors started offloading US bank stocks due to liquidity concerns.
Find more stories on economy and finance in TROIB business
TroibNews 
