By David French and Alun John
Lagos, March 11, 2023 (Reuters/GBN) – Startup-focused lender SVB Financial Group became the largest bank to fail since the 2008 financial crisis on Friday in a sudden collapse that roiled global markets, left billions of dollars belonging to companies and investors stranded.
California banking regulators closed the bank, which did business as Silicon Valley Bank, on Friday and appointed the Federal Deposit Insurance Corporation (FDIC) as receiver for later disposition of its assets.
Based in Santa Clara, the lender was ranked as the 16th biggest in the U.S. at the end of last year, with about $209 billion in assets.
Specifics of the tech-focused bank’s abrupt collapse were a jumble, but the Fed’s aggressive interest rate hikes in the last year, which had crimped financial conditions in the start-up space in which it was a notable player, seemed front and center.
As it tried to raise capital to offset fleeing deposits, the bank lost $1.8 billion on Treasury bonds whose values were torpedoed by the Fed rate hikes.
Silicon Valley Bank’s failure is the largest since Washington Mutual went bust in 2008, a hallmark event that triggered a financial crisis that hobbled the economy for years.
The 2008 crash prompted tougher rules in the United States and beyond.
Since then, regulators have imposed more stringent capital requirements for U.S. banks aimed at ensuring individual bank collapses won’t harm the wider financial system and economy.
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, the FDIC said.
But 89% of the bank’s $175 billion in deposits were uninsured as the end of 2022, according to the FDIC, and their fate remains to be determined.
The FDIC is racing to find another bank over the weekend that is willing to merge with Silicon Valley Bank, according to people familiar with the matter who requested anonymity because the details are confidential.
While the FDIC hopes to put together such a merger by Monday to safeguard unsecured deposits, no deal is certain, the sources added.
An FDIC spokesperson did not immediately respond to a request for comment.
Separately, SVB Financial, the parent company of Silicon Valley Bank, is working with investment bank, Centerview Partners, and law firm, Sullivan & Cromwell, to find buyers for its other assets, which include investment bank SVB Securities, wealth manager Boston Private and equity research firm MoffettNathanson, the sources said.
These assets could attract competitors and private equity firms, the sources added.
It’s unclear if any buyer will step up to buy these assets without SVB Financial having filed for bankruptcy first.
Credit ratings agency S&P Global Ratings said on Friday it expected SVB Financial to enter bankruptcy because of its liabilities. (GBN)
