Silicon Valley Bank has become the biggest US lender to fail in more than a decade after a tumultuous week that saw a failed attempt to raise capital and a cash exodus from the tech startups that fueled the lender’s rise.
Regulators swooped in and caught him on Friday in a stunning collapse for the lender, which has quadrupled in value over the past five years and was valued at more than $40 billion just last year.
The move by California state regulators to take ownership of the lender, known as SVB, and appoint a receiver for Federal Deposit Insurance Corp. underlines the impact that the rapid rise in US interest rates is having on smaller lenders. SVB is the second regional lender to fold this week after Silvergate Capital Corp. announced that it was voluntarily liquidating its bank, sparking a broader selloff in bank stocks.
Companies have suffered over the past few months as a result of the downturn in the tech and cryptocurrency world. “Bank runs are a lot about psychology. And at this point it’s very rational to be nervous,” said Saule Omarova, a law professor at Cornell University.
SVB’s problems grew after Peter Thiel’s Founders Fund and other major venture capital firms advised their portfolio companies to pull money out of the bank. The calls followed parent company SVB Financial Group’s announcement that it would try to raise more than $2 billion after a significant loss in its portfolio.
The FDIC said SVB insured depositors would have access to their funds by Monday morning at the latest. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds, the regulator said, adding that it does not yet know the amount. In announcing the takeover, the California Department of Financial Protection and Innovation cited insufficient liquidity and insolvency.
Acceptance usually means that another healthy bank will take over the bank’s deposits, or the FDIC will pay depositors up to the insured limit. “The FDIC report will end the uncertainty about this particular bank,” Omar said. “But I don’t think that necessarily in itself prevents people from feeling less safe if they’re exposed to some kind of asset or holding their own money in banks with a similar risk profile.”
SVB was founded in 1983 over a poker game between Bill Biggerstaff and Robert Medearis, according to the bank’s 20th anniversary statement. Since its foundation, the company has specialized in providing financial services to technology startups.
US regulators arrived at SVB’s California offices as the troubled lender sought to stabilize its finances on Thursday, Bloomberg News reported.
The bank had total assets of about $209 billion and total deposits of about $175.4 billion at the end of last year, the FDIC said Friday. “At the time of closing, the amount of deposits exceeding the insurance limits was not determined,” the regulator said.
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