California regulators appointed the Federal Deposit Insurance Corporation as receiver.
“Silicon Valley Bank, Santa Clara, California, was closed today by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank,” regulators said.
“All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023. The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”
The bank has an office in Raleigh and 17 branches across California as well as Massachusetts.
Triangle venture fund ‘pulling money out’ of Silicon Valley Bank
Earlier Friday, WRAL TechWire reported that some Triangle firms in the tech sector were either withdrawing funds or had been advised to do so.
Branches will reopen on Monday, regulators said.
“Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear,” the regulators added. “Under the Federal Deposit Insurance Act, the FDIC may create a DINB to ensure that customers have continued access to their insured funds.”
Top Triangle investor says several clients likely to withdraw funds at Silicon Valley Bank
Before being closed, SVB Financial Group is reportedly exploring a sale after selling billions of dollars of assets to make its customers whole and sparking a panic on Wall Street this week.
Reuters and CNBC, citing people familiar with the matter, reported that the financially strapped bank was considering a potential sale to a larger institution. SVB didn’t immediately respond to CNN’s request for comment.
Shares of SVB were halted Friday morning after falling more than 60% in premarket trading. The stock tumbled 60% Thursday after the bank said it had to sell a portfolio of US Treasuries and $1.75 billion in shares at a loss to cover rapidly declining customer deposits — essentially facing a run on the bank.
SVB, a relatively unknown bank outside of Silicon Valley, lends to higher-risk tech startups that have recently been hurt by higher interest rates and dwindling venture capital.
Silicon Valley bank is not a small bank, it’s the 16th largest bank in the country, holding $210 billion in assets. It acts as a major financial conduit for venture capital-backed companies, which have been hit hard in the past 18 months as the Federal Reserve has raised interest rates and made riskier tech assets less attractive to investors.
Venture capital-backed companies were being reportedly advised to pull at least two months’ worth of “burn” cash out of Silicon Valley Bank to cover their expenses. Typically VC-backed companies are not profitable and how quickly they use the cash they need to run their businesses — their so-called “burn rate” — is a typically important metric for investors.
The bank partners with nearly half of all venture-backed tech and health care companies in the United States, many of which pulled deposits out of the bank as rising interest rates raised concern that the bank may not be able to get all its customers’ money back if they pulled their deposits en masse.
The crisis at SVB prompted Wall Street billionaire hedge fund manager Bill Ackman to compare the situation to Bear Stearns, the first bank to collapse at the start of the 2007-2008 global financial crisis. Ackman said in a series of tweets that SVB may require a bailout and called on the US government to to step in to protect customers’ deposits and prevent damage to the bank’s tech startup clients.
“The risk of failure and deposit losses here is that the next, least well-capitalized bank races a run and fails and the dominoes continue to fall,” Ackman wrote.
Widespread contagion fears appeared to calm slightly Friday: Although SVB brought down mainstream bank stocks right along with it Thursday, most other bank stocks stabilized. Still, investors fear SVB’s surprise deposit crisis may not be a one-off event.
Several other bank stocks were halted Friday, including First Republic, PacWest Bancorp, and Signature Bank.
SVB’s sudden fall mirrored other risky bets that have gotten exposed in the past year’s market turmoil. Crypto-focused lender Silvergate said Wednesday it is winding down operations and will liquidate the bank after being financially pummeled by turmoil in digital assets.
When interest rates were near zero, large banks scooped up Treasuries and bonds. Now, as the Federal Reserve hikes rates to fight inflation, those bonds are worth much less and banks are sitting on the losses. For SVB, which said it is partnered with nearly half of all venture-backed tech and health care companies, cash-hungry startups are feeling the pinch.
The Treasury Department told CNN on Friday it’s monitoring the situation as financial pressure at the parent of Silicon Valley Bank raise concerns about the broader health of America’s banks.
“Treasury is aware of recent developments. The Department will remain in touch with regulators as appropriate,” a Treasury spokesperson said in a statement.
— CNN’s Matt Egan contributed to this report
The Associated Press contributed to this report.
