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The latest on the Silicon Valley Bank collapse

It went public in 1988 and, in 1989, moved to Menlo Park in an effort to cement its presence in the venture capital world. Silicon Valley Bank (SVB), a subsidiary of SVB Financial Group, was the 16th largest bank in the United States. Before the shutdown, some banking analysts dismissed concerns about a potential “contagion” stemming from SVB’s problems that could unsteady the banking sector — though without ruling out the possibility that the bank could fail. That appears to have morphed into a self-fulfilling prophecy, with tech titans including Peter Thiel reportedly warning startup founders to reduce their exposure to SVB. Founded in 1983, the bank grew to become the 16th-largest in the U.S, with $210 billion in assets. Over the years, according to reports, its client list grew to include some of the biggest names in consumer tech like Airbnb, Cisco, Fitbit, Pinterest and Square.

  1. So while one very likely outcome is that the uninsured depositors will eventually be made whole, the problem is that right now they have no access to that money.
  2. A recent regulatory filing reveals that about 90 percent of deposits were uninsured as of December 2022.
  3. That might be a lot of money for an individual, but we’re talking about companies here.

The Securities and Exchange Commission is also looking into what happened, according to a Wall Street Journal report on Tuesday. Senate Majority Leader Chuck Schumer said on Tuesday that the US banking system is stable thanks to swift action by the Biden administration, the Federal Reserve and the Federal Deposit Insurance Corporation. February retail sales data is also on deck Wednesday morning, along with a homebuilders survey that should give some insight into the health of the housing market. Newly appointed Silicon Valley Bridge Bank CEO Tim Mayopoulos asked customers to return some their funds into the bank. Most forecasters expect rates to go higher in the US, UK and Australia, before stabilising.

These probes are commonplace following a big loss, and are reportedly focused on the bank’s collapse and stock sales that financial officers made days before the failure. According to the FDIC, this is the second-largest bank failure in U.S. history, behind the collapse of Washington Mutual in September 2008. “The American people and American businesses can have confidence that their bank deposits will be there when they need them,” Joe Biden said in a statement. The president is set to speak on Monday, to lay out how the US will maintain a resilient banking system.

What happens to Silicon Valley Bank’s customers?

Customers tried to withdraw $42 billion in deposits on March 9th alone — a quarter of the bank’s total deposits on a single day. A high-profile bank failure like this one could reduce consumer confidence in the banking system. That lack of confidence could create more of the problem that contributed to Silicon Valley Bank’s failure—account holders rushing to withdraw deposits from a bank that doesn’t have the funds to cover them. In the day leading up to the bank’s collapse, multiple prominent venture capitalists took to Twitter in particular and used their large platforms to raise alarms about the situation, sometimes typing in all caps. Some investors urged startups to rethink where they kept their cash. Founders and CEOs then shared tweets about the concerning situation at the bank in private Slack channels, according to The Wall Street Journal.

Regional banks have seen their values plunge since SVB’s woes emerged. New York-based Signature Bank provides banking services to law firms. Regulators said the decision to close it came “in light of market events, monitoring market trends.” Other banks including First Republic Bank, Western Alliance and PacWest have also been hit by SVB’s fall. “Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place means we are not going to do that again.

What Was Silicon Valley Bank?

The impact was felt most in the 2-year Treasury yield, which generally reflects investors’ expectations of where interest rates are headed. That yield has dropped an entire point, from just over 5% to just under 4%, since the middle of last week. Wells Fargo analyst Shaw also said other banks were hit by panic selling.

While the FDIC can protect depositors from losses, it can’t do the same for shareholders and unsecured debt holders. In other words, individuals and institutions that owned stock in SVB Financial Group may not get their money back. The FDIC insures bank deposits of up to $250,000 per depositor https://www.forexbox.info/10-best-cloud-stocks-to-buy-for-rapid-growth/ per bank for each account category. In other words, if you had $250,000 in a Silicon Valley Bank account, you would get all of your money back. But as the Federal Reserve increased interest rates in response to high inflation, Silicon Valley Bank’s bonds became riskier investments.

Support our mission and help keep Vox free for all by making a financial contribution to Vox today. “This has proven that having 50 percent plus of your business in one industry is very dangerous. They outperformed on the way up, but on the way down, that’s when you figure out how exposed you are,” Yokum said. Ultimately, this risk of contagion could affect not just banks but the economy as a whole.

It turns out Becker also sold $3.6 million of shares in Silicon Valley Bank’s parent company on February 27th. This was a pre-arranged sale — he filed the paperwork on January 26th — but it does seem like curious timing! Becker was presumably aware of his own balance sheet, and a director of a regional Fed bank.

Just as the FDIC insures bank deposits of up to $250,000, the National Credit Union Administration (NCUA) does the same for credit union deposits. Nearly all banks are protected by FDIC insurance, which covers up to $250,000 per depositor https://www.day-trading.info/kvb-kunlun-review-is-kvb-a-scam-or-legit-broker/ per account ownership category. If the FDIC can’t find a healthy buyer for the bank, it will pay depositors the money that was in their account. However, if your account balance exceeds $250,000, you may not recover the full amount.

The tech industry moved fast and broke its most prestigious bank

If SVB’s assets can only be sold for, say, 90 cents on the dollar, it could encourage bank runs elsewhere. That might be a lot of money for an individual, but we’re talking about companies here. A recent regulatory filing reveals that about 90 percent of deposits were top 15 best crypto exchanges and trading platforms in 2021 uninsured as of December 2022. The FDIC says it’s “undetermined” how many deposits were uninsured when the bank closed. Most banks are insured by the Federal Deposit Insurance Corporation (FDIC), a government agency that’s been around since the Great Depression.

Instead, the money will come from the FDIC, which is the agency tasked with insuring bank deposits. The money the FDIC uses to cover those losses comes from quarterly premiums that all insured banks pay to the agency. The two major federal agencies are conducting separate probes, which are in their preliminary phases and may not lead to any charges or allegations of wrongdoings, the Journal reported.

He had to know the Fed was going to keep raising interest rates — I mean, if I knew it, he’d better have known it — and he had to know that would be bad news for Silicon Valley Bank. Customers withdrew $42 billion in a single day last week from Silicon Valley Bank, leaving the bank with $1 billion in negative cash balance, the company said in a regulatory filing. The staggering withdrawals unfolded at a speed enabled by digital banking and were likely fueled in part by viral panic spreading on social media platforms and, reportedly, in private chat groups. Bank runs happen when customers panic and everyone tries to get their money out at once. CNN’s Christine Romans explains that’s what happened at Silicon Valley Bank, leading to the second-biggest bank failure in US history. The FDIC said it is now working to determine what portion of SVB deposits are insured to its $250,000 limits.

The credit ratings firm said it expects more banks will be will come under pressure after SVB’s failure — particularly those with large hoards of uninsured deposits and long-term Treasury bonds that have crumbled in value. Moody’s said it expects pressure on the banking sector to persist as the Fed continues to hike interest rates to combat inflation. On Wednesday, March 8, SVB’s parent company, SVB Financial Group, said it would undertake a $2.25 billion share sale after selling $21 billion of securities from its portfolio at a nearly $2 billion loss. By Friday morning, trading of the stock was halted, and there was reporting SVB was in talks to sell. Big-name VCs such as Peter Thiel and Union Square Ventures reportedly started to tell their companies to pull their money out of the bank while they could. When signs of shakiness at SVB began to show, many companies and people with money in SVB moved to pull it out earlier in the week — actions that, ironically, contributed to the bank’s demise.

In order to make good on those withdrawals, SVB had to sell part of its bond holdings at a steep loss of $1.8 billion, the bank said last week. That announcement spooked the bank’s clients, who got worried about SVB’s viability, and then proceeded to withdraw even more money from the bank — a textbook definition of a bank run. On March 22, the Fed said it would raise interest rates by another quarter of a percentage point, less than the half a point it was expected to raise rates, but also a sign it remains focused on fighting inflation.