- By Natalie Sherman and James Clayton
- BBC News
US regulators have shut down Silicon Valley Bank (SVB) and seized control of its customers’ deposits in the biggest US bank failure since 2008.
The decisions came as the company, a key technology lender, struggled to raise funds to make up for a loss from the sale of assets hit by higher interest rates.
His setbacks sparked 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 “insufficient liquidity and insolvency,” banking regulators in California, where the company is headquartered, said in announcing the takeover.
The Federal Deposit Insurance Corporation (FDIC), which typically protects deposits up to $250,000, said it had taken over the roughly $175bn (£145bn) in deposits held at the bank, the 16th largest in the United States.
The bank’s offices would reopen and customers with insured deposits would have access to funds “no later than Monday morning”, he said, adding that money from the sale of the bank’s assets would go to unsecured depositors. insured.
With many of the company’s customers in this situation, the situation has left many businesses with cash tied up in the bank worried about their future.
“I’m on my way to the branch to find my money right now. Tried to transfer it yesterday didn’t work. You know those times when you might be really fucked up but you’re not sure? is one of those times,” a startup founder told the BBC.
Another healthcare start-up founder said, “Literally three days ago, we just hit $1 million in our bank account… And then it happened.”
He managed to transfer the money to another account 40 minutes before the deadline. “It was on hold. And then this morning it was there. But I know other people who did the same thing a few minutes after me, and it’s not transferred.”
“It was a crazy situation,” he said.
The collapse came after SVB said it was trying to raise $2.25bn (£1.9bn) to make up for 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 suffered their biggest one-day drop on record on Thursday, plunging more than 60% and fell further in after-hours sales before trading halted.
Fears that other banks could face similar problems led to a widespread sell-off in banking stocks around the world on Thursday and early Friday.
Speaking in Washington on Friday, US Treasury Secretary Janet Yellen said she was watching “recent developments” at Silicon Valley Bank and others “very carefully”.
She then met with key banking regulators, where the Treasury Department said it expressed “full confidence in banking regulators to take appropriate action in response and noted that the banking system remains resilient.”
SVB did not respond to a request for comment.
A crucial lender for start-ups, the company is the banking partner for nearly half of the venture-backed U.S. tech and healthcare companies that went public last year.
The company, which started as a California bank in 1983, has grown rapidly over the past decade. It now employs more than 8,500 people worldwide, although most of its operations are in the United States.
But the bank has been under pressure as higher rates make it harder for start-ups to raise funds through private fundraising or stock sales, and more customers have withdrawn their deposits, movements that snowballed this week.
In Silicon Valley, the repercussions of the collapse were widespread as companies faced questions about what the collapse meant for their finances.
Even companies without direct commerce have been affected, such as customers of Rippling, a company that manages payroll software and had used SVB. He warned that current payments could face delays and said he was transferring his business to another bank.
SVB’s UK subsidiary said it would be in bankruptcy from Sunday evening.
The Bank of England said Silicon Valley Bank UK would stop making payments or taking deposits in the meantime and the move would allow individual depositors to be paid up to £85,000 by the scheme UK deposit insurer.
“SVBUK has a limited presence in the UK and has no critical functions supporting the financial system,” the BoE added.
As well as being a blow to the tech industry, SVB’s collapse has raised concerns about the broader 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 raised borrowing costs sharply over the past year as they try to rein in inflation.
But as rates rise, the value of existing bond portfolios generally declines.
These falls mean that many banks are sitting on significant potential losses – although the change in value is generally not an issue unless other pressures force companies to sell their holdings.
Shares of some major U.S. banks rallied on Friday, but the selloff continued to hit smaller companies, forcing trading from names like Signature Bank and others to halt.
The tech-heavy Nasdaq ended the day down 1.7%, while the S&P 500 fell 1.4% and the Dow Jones closed down 1%.
Major European and Asian indices also closed lower, with the FTSE 100 down 1.6%.
Alexander Yokum, an equity research analyst at CFRA, said banks specializing in unique sectors are seen as vulnerable to rapid drawdowns, like the one that hit SVB.
“Silicon Valley Bank wouldn’t have lost money if it hadn’t run out of money to give back to its customers,” he said. “The problem was that people wanted money and they didn’t have it – they had invested it 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 added that tech companies would likely have an even harder time raising funds. “It’s not good,” he said.