Silicon Valley Bank (SVB) was closed down by the California Department of Financial Protection and Innovation because it ran out of money, and a failed $2.3 billion capital raise sent its stock crashing.
In handing over the VC finance house to the Federal Deposit Insurance Corporation (FDIC), it cited the bank’s “inadequate liquidity and insolvency.” The FDIC is now tasked with returning customers’ deposits within legal requirements.
As a result, the four largest U.S. banks lost more than $50 billion in market value. Bank stocks in Asia and Europe fell precipitously. Among UK banks, HSBC shares fell 4.8 per cent, while Barclays fell 3.8 per cent.
SVB’s shares experienced their biggest one-day drop on record, falling more than 60% and losing another 20% in after-hours trading. The drop came just one day after the bank announced a $2.25 billion (£1.9 billion) share sale to boost its finances.
After a run-on deposit made it impossible for the medium-sized bank to stay afloat on its own, U.S. authorities swooped in and seized SVB’s assets. SVB had been a key lender to U.S. startups since the 1980s. SVB specialized in startup financing and had grown to become the 16th largest U.S. bank by assets by the end of 2022, with $209 billion in assets and approximately $175.4 billion in deposits.
Depositors with more than $250,000 in the bank face a more uncertain path to recovering the uninsured portion of their funds. The FDIC stated that it will pay uninsured depositors “an advance dividend” and a certificate for the remainder of their account balance in the coming week, which will be funded by the sale of SVB assets.
According to reports, the vast majority of the bank’s deposits exceed $250,000, and thus are unlikely to be recovered. According to the FDIC, SVB had approximately $209 billion in assets and approximately $175.4 billion in deposits at the start of the year.
The sources for this piece include articles in TheRegister, BBC, and BusinessInsider.