Silicon Valley Bank, one of the tech sector’s favorite lenders, is shutting down.
The California Department of Financial Protection and Innovation announced Friday that it was taking over and closing the distressed bank to protect deposits, naming the Federal Deposit Insurance Corporation as its receiver. The FDIC in turn formed a separate entity where all insured SVB deposits would be transferred.
The closure marks the biggest bank failure since the 2008 financial crisis and the second-largest on record after Washington Mutual collapsed during that industry-wide meltdown, an FDIC spokesperson said.
Like other FDIC-member banks, deposits are insured up to $250,000 per depositor. The agency said it is “working over the weekend” to determine how many SVB deposits are insured.
The shutdown came after a tumultuous morning for the Santa Clara, California-based bank — the 16th largest bank in the country — during which trading of its shares was halted after they fell by double-digits before markets opened. That downslide came on the heels of a more than 60% decline Thursday.
Worries over a run at SVB led Wall Street investors to dump other bank stocks as well. Shares of other prominent West Coast lenders took sharp nosedives Friday, including First Republic Bank, PacWest Bancorp and Western Alliance Bancorporation.
In view of the tumult, Treasury Secretary Janet Yellen told House lawmakers Friday morning, “There are recent developments that concern a few banks that I’m monitoring very carefully, and when banks experience financial loss it is and should be a matter of concern.”
First Republic submitting a filing to the Securities and Exchange Commission Friday morning that “reiterates [its] continued safety and stability and strong capital and liquidity positions.”
Silicon Valley Bank didn’t respond to a request for comment.
Jitters around the bank followed the news this week that Silvergate, a much smaller bank largely focused on the cryptocurrency industry, announced plans to shut down. For SVB, the drama started earlier this week when it disclosed that it sold about $21 billion of securities and proposed to offer over $1 billion in shares, all to fundraise for “general corporate purposes.”
That move raised eyebrows among investors who pondered why SVB would need to raise so much money abruptly. It also sparked concerns among depositors, many of whom suddenly wondered whether their money was safe.
On Thursday, The Information reported that Silicon Valley Bank CEO Greg Becker was asking venture capital clients to “stay calm” as some tech founders began clarifying whether their companies had money at there.
Silicon Valley Bank is known for helping to finance an explosion of West Coast companies in the tech sector — an industry that has recently been walloped by high interest rates and an economic slowdown. Many of SVB’s depositors are tech startups and venture capital funds, and it doesn’t rely on mom-and-pop savings accounts like banks familiar to the average U.S. household.
SVB’s tech-focused strategy has helped it ride the industry’s massive growth leading up to and through the pandemic. But overzealous hiring during the public health crisis has more recently led the tech sector to institute sweeping layoffs, as the Federal Reserve sharply increased borrowing costs to cool inflation and has raised expectations of an economic slowdown.
“The issue here is what is the domino effect of problems outside the banking industry on the banks themselves?” Mike Mayo, a bank analyst at Wells Fargo Securities said earlier Friday, before regulators announced SVB’s closure. “Banks are still the heart of the economy, and if there’s issues, then banks are going to feel it.”
Mayo cautioned that the banking system overall has more robust guardrails now than it did 15 years ago, due to policies put in place after the last financial crisis such as regulations imposing stronger capital and liquidity requirements. As one of the country’s top 20 banks by total assets, SVB is subject to stricter regulations than many other lenders.
Weighing in on the crisis Friday, Cambridge University economist Mohamed El-Erian tweeted that “the most vulnerable currently are those vulnerable to both interest rate and credit risk,” adding that “the systemic threat can be easily contained by careful balance sheet management and avoiding more policy mistakes.”