US regulators on Friday rushed to seize the assets of one of Silicon Valley’s top banks, marking the largest failure of a US financial institution since the height of the financial crisis almost 15 years ago.
Silicon Valley Bank (SVB), the nation’s 16th-largest bank, failed after depositors hurried to withdraw money this week amid anxiety over the bank’s health. It was the second-biggest bank failure in US history after the collapse of Washington Mutual in 2008.
The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands.
Photo: AFP
“This is an extinction-level event for start-ups,” said Garry Tan (陳嘉興), CEO of Y Combinator, a start-up incubator that launched Airbnb, DoorDash and Dropbox, and has referred hundreds of entrepreneurs to the bank.
“I literally have been hearing from hundreds of our founders asking for help on how they can get through this,” Tan said. “They are asking: ‘Do I have to furlough my workers?’”
There appeared to be little chance of the chaos spreading in the broader banking sector, as it did in the months leading up to the 2008 recession. The biggest banks — those most likely to cause an economic meltdown — have healthy balance sheets and plenty of capital.
Photo: Reuters
Nearly half of the US technology and healthcare companies that went public last year after receiving early funding from venture capital firms were Silicon Valley Bank customers, the bank’s Web site says.
Tan said that nearly one-third of Y Combinator’s start-ups would not be able to make payroll at some point in the next month if they cannot access their money.
Internet TV provider Roku was among casualties of the bank’s collapse.
It said in a regulatory filing on Friday that about 26 percent of its cash — US$487 million — was deposited at SVB, and the deposits were largely uninsured.
As part of the seizure, California bank regulators and the US Federal Deposit Insurance Corp (FDIC) transferred the bank’s assets to a newly created institution — the Deposit Insurance Bank of Santa Clara. The new bank is to start paying out insured deposits tomorrow.
The FDIC and California regulators plan to sell off the rest of the assets to make other depositors whole.
There was unease in the banking sector all week, with shares tumbling by double digits. Then news of SVB’s distress pushed shares of almost all financial institutions even lower on Friday.
The failure arrived with incredible speed.
Some industry analysts on Friday said the bank was still a good company and a wise investment, while SVB executives were trying to raise capital and find additional investors.
However, trading in the bank’s shares was halted before the stock market’s opening bell due to extreme volatility.
Shortly before noon, the FDIC moved to shutter the bank. Notably, the agency did not wait until the close of business, which is the typical approach. The FDIC could not immediately find a buyer for the bank’s assets, signaling how fast depositors cashed out.
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