Silicon Valley Bank and Signature Collapses: What We Know The New York Times

what is svb

SVB lost $1.8 billion, and that marked the beginning of the end for the bank. I think it might have been possible to staunch the bleeding if Becker had been even halfway good at PR. Until shortly after the failure of Silicon Valley Bank, its (now-former) CEO Greg Becker was a director of the Federal Reserve Bank of San Francisco.

That said, SVB’s collapse isn’t great, especially for the people who are going to be stuck holding the bag. There continue to be concerns about the health of the broader banking system. Part of SVB’s specific problem is that it was so concentrated in its business. SVB catered to venture capital and private equity — as that sector has done well over the past decade, so has SVB. But because the bank was also very concentrated with high exposure to one industry, that opened it up to risk.

Some people believe that Silicon Valley Bank’s failure started far earlier with the rollback of the Dodd-Frank Act, which was the major banking regulation that was put into effect in response to the financial crisis of 2008. As this was happening, some of Silicon Valley Bank’s customers—many of whom are in the technology industry—hit financial troubles, and many began to withdraw funds from their accounts. President Joe Biden commented on the situation in an attempt to reassure the public, saying the Silicon Valley Bank funds would still “be there when you need them” without requiring a taxpayer-funded bailout.

what is svb

The Federal Reserve Board, the governing body of the Fed, announced it would launch a review of the «supervision and regulation of Silicon Valley Bank, in light of its failure.» Tech entrepreneur Mark Cuban, known to many for his role as a panelist on the show «Shark Tank,» derided the $250,000 bank insurance threshold as «too low.» March 9 – Shares of Silicon Valley Bank fell 60% in response to investor concern about the bank’s distressed financial position.

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The money being used doesn’t come from taxes, instead, it’s from insurance premiums paid by banks, and interest earned on money invested in US government obligations, according to the FDIC. The FDIC’s job is to get the maximum amount from Silicon Valley Bank’s assets. One is that another bank acquires SVB, getting the deposits in the process.

That funding, the announcement said, will come from loans from the newly created Bank Term Funding Program. While the FDIC has guaranteed deposits of up to $250,000, depending on the size of the company, that money wouldn’t go very far. This doesn’t just apply to companies that deposited cash with SVB — it’s also a question for companies using other SVB instruments, like revolver loans or credit cards.

Customers tried to withdraw $42 billion in deposits on March 9th alone — a quarter of the bank’s total deposits on a single day. 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 uninsured as of December 2022.

questions about Silicon Valley Bank’s collapse, answered

What happened is a little complicated — and I’ll explain farther down — but it’s also simple. A bank run occurs when depositors try to pull out all their money at once, like in It’s a Wonderful Life. And as It’s a Wonderful Life explains, sometimes the actual cash isn’t immediately there because the bank used it for other things.

  1. Silicon Valley Bank invested in a number of VCs over the years, including Accel Partners, Kleiner Perkins, Sequoia Capital, and Greylock.
  2. The move caused a wider sell-off in stocks and sparked fears that other banks may be at risk of failure.
  3. It turns out Becker also sold $3.6 million of shares in Silicon Valley Bank’s parent company on February 27th.

Of course, one other problem is that a lot of investors were also banking at SVB, too. Just two days after SVB failed, New York-based Signature Bank was shut down by regulators, becoming the third-largest bank failure in U.S. history (right behind SVB). Amid concerns about the bank’s stability, some venture capital funds, including Peter Thiel’s Founders Fund, advised portfolio companies to pull money out of SVB.

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Banking regulators shut down Silicon Valley Bank, or SVB, on Friday, March 10, after the bank suffered a sudden, swift collapse, marking the second-largest bank failure in US history. Just two days prior, SVB signaled that it was facing a cash crunch. It first tried to raise money by selling shares and then it tried to sell itself, but the whole thing spooked investors, and ultimately, it went under. On Sunday, March 12, the federal government said it would step in to make sure all of the bank’s depositors would have access to their funds by Monday, March 13. Regulators also shuttered another bank, Signature Bank of New York, which had gotten into crypto, and the federal government said its depositors’ money would be guaranteed as well. Silicon Valley Bank was founded in 1983 in Santa Clara, California, and quickly became the bank for the burgeoning tech sector there and the people who financed it (as was its intention).

At the same time, the bank signaled that its securities had lost value as a result of higher interest rates. Silicon Valley Bank collapsed in spectacular fashion Friday just days after it announced big losses, creating the biggest bank failure in the United States since the Great Recession and quickly sparking a government plan to protect depositors. On Friday, Silicon Valley Bank, a lender to some of the biggest names in the technology world, became the largest bank to fail since the 2008 financial crisis. By Sunday night, regulators had abruptly shut down Signature Bank to prevent a crisis in the broader banking system. The banks’ swift closures have sent shock waves through the tech industry, Washington and Wall Street. 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.

But it would be too simplistic to say none of the losses will be borne by taxpayers. As a part of Dodd-Frank, banks with more than $50 billion in assets would be subject to additional oversight and rules. But the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, signed into law by President Donald Trump, significantly changed that requirement. Instead of setting the threshold at $50 billion, the 2018 law increased it to $250 billion. To accommodate these large withdrawals, Silicon Valley Bank decided to sell some of its investments, but those sales came at a loss.

Silicon Valley Bank shutdown: How it happened and what comes next

But the bank got to a point where the losses were so high, customers began to fear SVB couldn’t guarantee access to every customer’s funds. That fueled a massive bank run which caused the FDIC to step in. Thankfully, federal regulators responded quickly to the collapse of SVB, implementing several measures to reduce depositors’ losses and renew confidence in the banking system and the economy overall. SVB reported $212 billion in assets for the fourth quarter of 2022, making it the second-largest bank failure in U.S. history, second only to Washington Mutual, whose 2008 failure came as the bank had roughly $300 billion in assets. Silicon Valley Bank ranked as the 16th-largest bank in the United States based on assets prior to its collapse. If a member bank fails, its deposits — that’s the money you’ve put in said bank — are still insured for up to $250,000.

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For a mid-sized regional bank, «buying the whole bank would be a very large transaction and a big shift in focus to one area although Silicon Valley is known for very strong relationships in this business,» wrote Vivek Juneja, JPMorgan analyst. Early reports suggested PNC Financial, JPMorgan and Royal Bank of Canada were among the suitors for the failed SVB bank, but more recent reports have said PNC has declined and interest from RBC has cooled. That fear directly flowed to Signature Bank, contributing to its collapse on Sunday. This set off panic across Silicon Valley, prompting SVB’s CEO on Thursday to hold a conference call with clients asking them to remain calm.

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