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CNN
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The Silicon Valley Bank collapsed on Friday morning after a staggering 48 hours during which its capital crisis sparked fears of a collapse in the banking industry.
Its collapse marks the biggest US bank shutdown since 2008, when Washington Mutual collapsed during the financial crisis.
California regulators shut down technical lender and transfer it to the control of the US Federal Deposit Insurance Corporation. The FDIC acts as a receiver, which usually means that it will liquidate the bank’s assets in order to pay off its customers, including depositors and creditors. The FDIC is an independent government agency that insures bank deposits and oversees financial institutions.
The FDIC said all insured depositors will have full access to their insured deposits no later than Monday morning, and it will pay uninsured depositors “an upfront dividend within the next week.”
The bank, formerly owned by SVB Financial Group, did not respond to CNN’s request for comment.
Although SVB is relatively unknown outside of Silicon Valley, it was among the top 20 US commercial banks with total assets of $209 billion at the end of last year, according to the FDIC.
But SVB catered primarily to higher-risk tech startups, which have recently been hit by higher interest rates and dwindling venture capital.
The bank cooperates with almost half of all venture technology and medical companies in the United States, many of which have withdrawn deposits from the bank.
SVB shares were halted on Friday morning after falling more than 60% in premarket trading. Shares fell 60% on Thursday after the bank said it had to sell a $1.75 billion portfolio of US Treasury bonds and stocks at a loss to cover rapidly declining customer deposits – essentially facing a run on the bank.
Shares of several other banks were temporarily halted on Friday, including First Republic, PacWest Bancorp and Signature Bank.
On Thursday, as bank stocks around the world tumbled in response to the SVB crisis, fears of contagion spread across Wall Street. Hedge fund manager Bill Ackman compared the situation at SVB to the last days of Bear Stearns, the first bank to collapse at the onset of the 2007-2008 global financial crisis.
“The risk of bankruptcy and loss of deposits here is that the next least capitalized bank will fail and fail, and the dominoes will continue to fall,” Ackman wrote in a series of tweets.
By Friday, the panic of many seemed to subside. Bank shares remained mostly on the downside, but stable.
Mike Mayo, senior banking analyst at Wells Fargo, said the SVB crisis could be “an idiosyncratic situation.”
“It’s day and night compared to the global financial crisis 15 years ago,” he told CNN’s Julia Chatterley on Friday. Then, according to him, “the banks were taking excessive risks, and people thought that everything was in order. Everyone is worried now, but on the surface, the cans are more stable than ever.”
The sudden drop in the SVB reflected other risky bets that were exposed as a result of last year’s market turmoil.
Crypto-focused lender Silvergate said on Wednesday it was winding down operations and liquidates the bank following financial turmoil in digital assets. Signature Bank, another crypto-friendly lender, was hit hard by the bank’s sell-off, with shares falling 30% before being stalled by Friday’s volatility.
“SVB’s institutional problems reflect a larger and more widespread systemic problem: the banking industry is sitting on a ton of low-yield assets that, thanks to last year’s rate hikes, are now far under water – and sinking,” Alt wrote. co-founder of Klaros Group.
Alt estimates that the rate hike “virtually wiped out roughly 28% of all capital in banking as of the end of 2022.”
When interest rates were close to zero, banks loaded long-term, low-risk Treasuries. But as the Fed raises interest rates to fight inflation, the value of these assets has fallen, leaving banks with unrealized losses.
— Matt Egan of CNN contributed to this report.