What is Silicon Valley Bank? The banks collapse, explained

Silicon Valley Bank’s four-decade run as the tech world’s preferred lender came to sudden end Friday after the feds shut down the embattled firm due to liquidity fears. At Vox, we believe that clarity is power, and that power shouldn’t only be available to those who can afford to pay. Millions rely on Vox’s clear, high-quality journalism https://www.forex-world.net/stocks/exxon-mobil/ to understand the forces shaping today’s world. Support our mission and help keep Vox free for all by making a financial contribution to Vox today. One way to gauge SVB’s influence in the tech world was to attend a tech conference, where SVB was often a prominent sponsor (and, sometimes, its executives were also featured speakers).

The overall banking industry is likely fine, and again, SVB probably would have made it through had everybody not freaked out at the same time. That said, SVB’s collapse isn’t great, especially for the people who are going to be stuck holding the bag. The risk and financial advisory firm Kroll said it was “unlikely that an SVB-style bankruptcy will extend to the large banks”. But it warned that small community banks could face problems, a risk “much higher if uninsured depositors of SVB aren’t made whole”. US financial regulators rolled out emergency measures on Sunday night to stem potential contagion from the collapse of Silicon Valley Bank.

1. Often, he said, SVB tied a company’s loan to an executive’s mortgage — and that a default on one would trigger a default on the other.
2. When the Federal Reserve made its announcement, it clarified that none of the losses would be taken on by taxpayers.
3. “The more rates go up, the more the banks on the edge start to become a problem,” Yokum said.
4. 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.

While you may not pay for the losses directly with your tax dollars, some losses could ultimately trickle down. For example, if your bank has to pay more for deposit insurance, it might charge you a higher interest how to choose stocks for day trading 2020 rate on a loan or pay you a lower percentage of interest in your savings account. Bank failures like this have happened before—there were more than 550 banks shut down between 2001 and the start of 2023.

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Mark Warner, a Virginia Democrat on the US Senate banking committee, said SVB had been “caught in a bind” by higher interest rates. A run on the bank last week, with $42bn withdrawn on Thursday alone, was accelerated by “some actors”, he told ABC’s This Week. “The American banking system is really safe and well-capitalised, it’s https://www.forexbox.info/investment-strategies/ resilient,” Yellen told CBS’s Face the Nation. “Americans can have confidence in the safety and soundness of our banking system. Bank analysts at Morgan Stanley said in a note “the funding pressures facing” Silicon Valley Bank “are highly idiosyncratic and should not be viewed as a read-across to other regional banks.”

But because the bank was also very concentrated with high exposure to one industry, that opened it up to risk. When things got bad for its non-diversified group of clients, it very quickly got bad for the bank. If you work in tech, you had probably heard of Silicon Valley Bank before now.

“SVB offers financial and banking services to help, as you capitalize on business opportunities, raise capital, protect equity, manage cash flows and access global markets,” a message on the bank’s website says. 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. This means banks will be able to easily access depositors’ cash, without having to sell government bonds that have fallen in value over the last year, as interest rates have risen.

The Fed also cited the 2018 change in Fed supervisory standards and the impact of social media with a highly networked and concentrated depositor base as contributing factors. “As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors,” the feds added. The failure of SVB “could be the first cockroach in the cellar”, the investment manager Fredric Russell told the Wall Street Journal.

Operations in lead-up to collapse

The failed bank was reportedly without a risk management officer for months before it collapsed. Yellen said conditions did not match the 2008 financial crisis, when the collapse of large institutions threatened to bring down the global financial system. She also sought to calm fears the $23tn US banking system could be affected by the fall of a regional bank.

The measures include ensuring that depositors with the failed bank would have access to all their money on Monday morning. A bank that caters to many of the world’s most powerful tech investors collapsed on Friday and was taken over by federal regulators, becoming one of the largest lenders to fail since the 2008 Global Financial Crisis. Many startup executives whose companies banked with SVB are now also likely facing a payroll crisis, Hargreaves said, because the FDIC is authorized to release only insured deposits of up to $250,000. That heightens the risk that these companies could announce furloughs or layoffs of dozens or even hundreds of employees, he said.

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The collapse of Silicon Valley Bank in March 2023 represents the largest bank failure since the financial crisis of 2008. And given the already-present fears of a recession, the collapse further shook consumer confidence in the economy. SVB’s collapse is the second-largest bank failure in history, trailing only that of Washington Mutual Inc., and the largest of its kind since the 2008 financial crisis.

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The announcement came as Signature Bank was closed on Sunday by regulators, the second to fail in a week. The entity created by federal regulators to oversee SVB, the Deposit Insurance National Bank of Santa Clara, has quite a few things to sort out. But 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.

In most cases, this would mean account holders would lose any money above that threshold. 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. But as the Federal Reserve increased interest rates in response to high inflation, Silicon Valley Bank’s bonds became riskier investments.