California banking regulators on Friday closed SVB Financial Group, the largest bank failure since the financial crisis, moving quickly to protect depositors as a crisis at the startup-focused lender rippled through global markets and hit banking stocks.
The regulator appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, putting the tech-heavy lender into receivership and will dispose of its assets, according to a statement.
Silicon Valley Bank is the first FDIC-insured institution to fail this year, the FDIC said. The last FDIC-insured institution to close was Almena State Bank, Almena, Kansas, on October 23, 2020.
The main office and all branches of Silicon Valley Bank will reopen on March 13 and all insured depositors will have full access to their insured deposits no later than Monday morning, according to the FDIC statement.
Shares of SVB were halted on Friday after tumbling as much as 66% in premarket trading.
SVB, which does business as Silicon Valley Bank, was not immediately available for comment.
Earlier, SVB said it was undergoing a series of conversations to determine next steps for the company, it wrote in a memo to employees Friday morning seen by Reuters.
"We request all employees work from home today and until further notice, except essential and branch employees. More information will be communicated as soon as it is available."
Treasury Secretary Janet Yellen told lawmakers on Capitol Hill Friday the department was aware of recent developments and was monitoring the situation, calling it "a matter of concern" when banks experience losses, according to CNBC.
The brutal rout in SVB's stock which began on Thursday spilled over into other U.S. and European banks, with the episode spreading concern about hidden risks in the sector and its vulnerability to the rising cost of money. But banking shares were well off their lows on Friday.
The S&P 500 banks index dropped 0.5% on Friday after a 6.6% decline on Thursday, while the KBW Regional Banking index was down 2.8%. Europe's STOXX banking index fell almost 4%, its biggest one-day slide in about a year.
The problems at SVB underscore how a campaign by the U.S. Federal Reserve and other central banks to fight inflation by ending the era of cheap money is exposing vulnerabilities in the market.
"Silicon Valley Bank is shedding light on vulnerabilities across the US banking sector, primarily in the bond holdings that many large institutions hold," said Karl Schamotta, Chief Market Strategist at Corpay.
"Investors are fearing a repeat of 2008-style sort of dynamics, and this sell-off in the banking sector has raised fears of systemic risk."
'Chaos' as clients rush to withdraw
One UK-based principal at a venture capital firm, who asked to be anonymous because he is not authorized to speak to press, said that his firm had rushed to pull “single digit millions” from four accounts at Silicon Valley Bank late on Thursday.
The source characterized the situation as "chaos." He said they have less than a million left in the bank, for operational costs.
He said that almost all of his firm’s U.S.-based funds and investments bank with Silicon Valley Bank, and it was not known if those firms had been able to pull out their funds.
"The issue that a lot of funds and companies will have is they don't have another custodian they can send money to. We set one up in the case of this happening,” he said.
The technology sector has been hit hard in the past few months and stress has appeared in other corners of the market as rates rise.
Crypto-focused bank Silvergate Capital Corp said on Wednesday it planned to wind down operations and voluntarily liquidate after it was hit with losses following the dramatic collapse of crypto exchange FTX.
Silvergate shares rebounded Friday to $3.04 after a sharp drop in the prior session. They had traded above $100 a share a year ago.
The crisis at SVB started earlier this week when the bank, which lends heavily to tech startups, launched a share sale to shore up its balance sheet after selling a portfolio consisting mostly of U.S. Treasuries at a loss.
Sources familiar with the situation said on Thursday that some startups had advised their founders to pull out their money from SVB as a precautionary measure.
Short sellers in SVB have profited by $717 million since Wednesday's close, according to analytics firm Ortex.
“There are people who are surprised because SVB is not a household name, and the next thing you know, you barely heard two days ago it was in trouble and today it’s defunct – I mean that’s crazy," said Mayra Rodríguez Valladares, a financial risk consultant who trains bankers and regulators. "It tells you how much this market is built on faith and trust.“
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