The assets of Silicon Valley Bank were seized by the Federal Deposit Insurance Corporation on Friday, making it the biggest bank failure since Washington Mutual failed at the height of the financial crisis in 2008.
The FDIC mandated Silicon Valley Bank’s collapse and promptly assumed ownership of all bank balances.
At the time of bankruptcy, the bank had $175.4 billion in deposits and $209 billion in assets, according to a statement from the FDIC.
How much the deposits exceeded the $250,000 insurance cap wasn’t immediately apparent.
While large banks have enough capital to prevent a similar crisis, Silicon Valley was strongly exposed to the tech industry, and there is little likelihood that this exposure will spread to the rest of the banking industry.
Last week, Silicon Valley Bank’s financial stability came under increased scrutiny when it revealed intentions to raise $1.75 billion to bolster its capital position in response to worries about rising interest rates and the state of the economy.
Bank stock prices plummeted on Friday as investors were increasingly concerned that a bank with significant exposure to the technology sector may need to raise urgent capital or sell off assets soon.
Before the Nasdaq opening bell, trading in the stock of Silicon Valley Bank’s parent company, SVB Financial Group, was suspended after shares fell by about 70%. Concerns over rising interest rates and other factors led the bank to announce plans to raise $1.75 billion to bolster its capital position.
According to CNBC, the bank is now attempting to sell itself after failing to raise enough money. According to media reports, depositors quickly withdraw cash from the bank, perhaps triggering a bank run.
With $210 billion in assets, Silicon Valley Bank ranks as the 16th largest bank in the nation. It is a significant financial channel for venture capital-backed businesses, severely impacted over the past 18 months due to the Federal Reserve raising interest rates and decreasing investor demand for risky digital assets.
According to reports, Silicon Valley Bank recommended venture capital-backed companies withdraw enough “burn” funds to cover their expenses for at least two months. Since most VC-backed businesses are not profitable, investors frequently pay close attention to a company’s “burn rate” or how rapidly it spends the money it needs to operate.
According to Labor Department data issued on Friday, diversified banks like Bank of America and JPMorgan recovered from an early dip, but regional banks, mainly those heavily exposed to the IT industry, were in decline.
Yet, this week has been difficult. Major banks’ stock prices have fallen between 7% and 12% this week.