Silicon Valley Bank collapsed after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in U.S. history. What do you think?
“Let’s hurry up and bail it out so we can do this all over again.”
Ethan Dodds, Capsicum Specialist
“Just tell me if I have to jump out of my penthouse or not.”
Nora Khoury, Merkin Designer
“We deregulated our way into this mess, and we can deregulate our way out of it.”
For much of the weekend, Silicon Valley scrambled to find a way through what one prominent tech investor described as an “extinction-level event for startups” after the collapse of a top lender in the industry.
Startups raced to line up loans from venture funds and fintech firms to make payroll. Venture-backed retailers hosted last-minute sales to boost their cash reserves. And at least one prominent startup accelerator convinced thousands of CEOs and founders to sign an “urgent” petition calling for Treasury Secretary Janet Yellen and others to offer “relief.”
Then, late Sunday, federal officials stepped in to guarantee that all customers of the failed Silicon Valley Bank would have access to their full deposits on Monday. The sense of relief was palpable throughout the tech sector.
“Obviously, I’m quite relieved,” said Stefan Kalb, co-founder and CEO of Seattle-based startup Shelf Engine, who told CNN that his company would have had to shut down by the end of the week without the government intervention. “It was a very stressful weekend and I’m quite relieved with the news.”
Parker Conrad, the CEO of HR platform Rippling, who had previously said some customers’ payrolls were being delayed by the bank failure, tweeted Sunday: “Anyone else breathing a sigh of relief and looking forward to a good night’s sleep tonight?”
And Garry Tan, the CEO of tech startup accelerator Y Combinator who authored the petition to Yellen, praised the federal government for “decisive action.” Tan, the investor who had previously warned of “an *extinction level event* for startups” that would “set startups and innovation back by 10 years or more,” added his appreciation on Sunday for “everyone who helped us through a very very intense time.”
But even as the tech industry enjoys a respite from a fearful weekend, unknowns remain. “You can feel the collective *sigh*,” Ryan Hoover, a tech founder and investor wrote on Twitter Sunday. “I’m still nervous,” he added. “Hard to predict the collateral effects.”
It’s unclear how the aftershocks of the bank’s collapse will add to the startup industry’s growing challenges accessing capital. SVB’s collapse also risks changing how the world, and prospective recruits, think of Silicon Valley.
For years, the term itself conjured an image of an enclave of bright, contrarian, libertarian engineers and thinkers who could see around corners and make big bets on the future. Now, that same industry is relying on the federal government to survive after failing to see the risk, or worse, contributing to it through a shared hysteria.
In the chaotic days leading up to the bank’s collapse on Friday, some venture firms reportedly urged their portfolio companies to withdraw their money, which may have contributed to the bank failing.
Then, over the weekend, many venture capitalists and tech founders banded together to try and lobby government and public goodwill towards saving the companies impacted by Silicon Valley Bank’s sudden collapse.
While some VCs appeared to embrace fear-mongering on Twitter, much of the public messaging focused on the small businesses with exposure to Silicon Valley Bank that might be not be able to continue operating after losing access to the money in their bank account.
“We are not asking for a bailout for the bank equity holders or its management; we are asking you to save innovation in the American economy,” the Y Combinator petition stated. “We ask for relief and attention to an immediate critical impact on small businesses, startups, and their employees who are depositors at the bank.”
A separate coalition of more than a dozen venture capital firms, including Lightspeed Venture Partners and Upfront Ventures, released a joint statement late Friday supporting Silicon Valley Bank, given its unique and vital role in the startup economy. The bank worked with nearly half of all venture-backed tech and healthcare companies in the United States.
“For forty years, it has been an important platform that played a pivotal role in serving the startup community and supporting the innovation economy in the US,” the statement read. “In the event that SVB were to be purchased and appropriately capitalized, we would be strongly supportive and encourage our portfolio companies to resume their banking relationship with them.”
Even before the bank’s collapse, the startup industry was in a tough moment. Venture capital funding had dwindled amid rising interest rates and broader macroeconomic uncertainty; tech companies were cutting staff and ambitious projects; and some of the biggest private companies were reportedly slashing their valuations.
The instability at a top tech lender, and the lingering questions about its impact on other regional banks and the broader financial system, risk making it even harder for money-losing startups to access the capital they need to survive.
President Joe Biden emphasized in remarks Monday that “no losses will be borne by the taxpayers” related to the government’s intervention for Silicon Valley Bank. But some are already skeptical of that statement, including Democratic Sen. Elizabeth Warren of Massachusetts, who wrote in an op-ed Monday morning, “We’ll see if that’s true.”
More immediately, there’s uncertainty around how long it will take for companies to get their money out of the bank.
As of Monday, Kalb said the money in his Silicon Valley Bank account has not been transferred yet to the new JPMorgan Chase account he set up for Shelf Engine on Thursday. “I’ve been obsessively checking my email,” he said. “Hopefully the money will be able to be transferred shortly.”
Ben Kaufman, the co-founder of venture-backed toy store and online retailer Camp, told CNN’s Poppy Harlow in an interview Monday morning that he and his team spent the weekend trying to “fight for survival,” including holding a last-minute 40% off sale, using the code “BANKRUN,” to raise capital over the weekend.
“We did not know how long it was going to take for us to get our cash out … we still kind of don’t, they say today, we’ll see what happens,” he said, noting the bank held 85% of his company’s assets. “We hope we can, and we’re so grateful that the Fed stepped in, and the way they did.”
When asked if the past week’s events would change how and where he stores his money, Kaufman said that is “going to have to be a consideration moving forward.”
The startling collapse of Silicon Valley Bank and Signature Bank continued to ripple across the American economy even as the U.S. raced to stabilize the banking system.
In a bid to contain the risk of contagion, financial regulators announced Sunday that they will guarantee all deposits at the banks, while President Biden said Monday that “Americans can have confidence that the banking system is safe.” Here’s the latest on the situation.
Silicon Valley Bank (SVB), the 16th-largest U.S. bank with $210 billion in assets, was seized by California regulators on Friday after depositors rushed to withdraw funds over concerns the bank might become insolvent. It is the second-biggest bank failure in U.S. history and the largest since the Federal Deposit Insurance Corporation was forced to take control of Washington Mutual in 2008 during the subprime housing crash.
SVB’s collapse spooked customers at other banks, including clients with deposits exceeding the FDIC’s $250,000 deposit insurance limit, and raised concerns about possible runs at other financial institutions. Heightening those fears, New York state regulators on Sunday shuttered Signature Bank — the third-biggest failure in U.S. banking history.
Another bank, Silvergate Capital, also blew up last week, although that preceded SVB’s failure and stemmed from losses tied to the struggles of cryptocurrency customers like bankrupt FTX and Genesis. The government did not take control of Silvergate, which chose to liquidate.
What is the government doing?
The FDIC, Federal Reserve and Department of the Treasury said in a joint statement on Sunday that the U.S. will guarantee the deposits of both SVB and Signature.
It’s worth noting that the FDIC is required by law to resolve a failed bank while moving to protect depositors. The government said that SVB customers, most of which are small and midsize technology companies, will be able to tap their funds starting on Monday.
The Fed and Treasury also launched a program that would advance capital for up to one year to any federally insured bank eligible to borrow from the central bank. The goal is to allow banks to cover deposit outflows without having to absorb loss on depreciated securities, according to Goldman Sachs analysts.
Are the feds bailing out banks — again?
The Biden administration quickly took the idea of a bailout for SVB off the table, no doubt sensitive to the optics of Washington again riding to the rescue of bankers, as the Obama administration did during the 2008 financial crisis.
Mr. Biden and Treasury Secretary Janet Yellen said taxpayers won’t be on the hook for any losses related to disposing of SVB, seeking to allay any concerns about Americans having to bear the brunt. Instead, the FDIC will handle the costs using the fees that banks contribute to the agency’s deposit insurance fund.
Meanwhile, shareholders at SVB and Signature, along with their unsecured creditors, will lose their money and bank executives will lose their jobs. It is depositors who are being rescued. That is what bank regulators are supposed to do when lenders crash — protect Main Street.
Some Republican lawmakers, including House Financial Services Committee Chairman Patrick McHenry of North Carolina and Senate Banking Committee Ranking Member Tim Scott of South Carolina, were also careful to avoid framing the government’s guarantees for SVB and Signature as a bailout.
Still, some analysts think Republicans could look to make political hay out of the crisis, noting that the deep-blue states of California and New York were home to the two banks.
Why did Silicon Valley Bank fail?
The short answer is that SVB was unprepared for the Federal Reserve aggressively pushing up interest rates.
By industry standards, according to Bloomberg, a disproportionate share of the company’s capital was held in longer-duration investments, including mortgage securities and bonds. As interest rates rose, the value of of SVB’s investment portfolio fell, raising concerns about its solvency and leading the bank’s customers to yank their funds.
Many of SVB’s customers were venture capital-backed tech startups that grew quickly during the pandemic, with significant cash holdings they kept at SVB. As interest rates surged and the economy slowed, many of these players have burned through their cash, driving down the bank’s deposits.
That had at least two adverse effects on SVB, according to investment bank UBS: First, the bank had to dump securities at a loss to raise capital; second, SVB had to record the losses on its balance sheet, alarming investors.
By contrast, experts say that most regional lenders, as well as the biggest banks, have far more diversified deposit bases.
What will happen to Silicon Valley Bank?
The FDIC scrambled to find buyer for SVB after taking it over, but that effort appears to have failed. Treasury Secretary Janet Yellen told “Face the Nation” on Sunday that the FDIC was considering a “range of available options,” including an acquisition by a foreign bank.
Why did Signature Bank fail?
Regulators closed Signature, a $110 billion commercial bank with offices in California, Connecticut, Nevada, New York and North Carolina, on Sunday as customers alarmed by SVB yanked their funds.
On paper, Signature was on solid footing, and as recently as March 9 the company was touting its “strong financial position.” But its collapse underlined how quickly panic can grip banking customers, who often move their assets to large banks when uncertainty flares.
Barney Frank, the former House Speaker from Massachusetts and a member of Signature’s board of directors, told the Wall Street Journal that the company failed because of an “SVB-generated panic.”
Is the U.S. banking system safe?
Mr. Biden sought to reassure Americans that the nation’s banking system remains stable, saying that “Your deposits will be there when you need them.”
Bank industry analysts also expressed confidence that the banking system as a whole is safe.
“We believe the events should not have significant broader implications for the economy and are not a sign of systemic risks to the banking sector,” John Canavan, lead analyst at Oxford Economics, told investors in a report on Monday.
One reason that view might be right: The failures of Silicon Valley Bank, Signature and Silverlake appear chiefly a result of financial issues specific to each bank — exposure to interest rates at SVB and exposure to crypto industry losses at Signature and Silverlake — not systemic issues with America’s banks.
In other words, these banks collapsed for markedly different reasons than those that slammed Lehman Brothers in 2008 as well as the broader lending industry during the ensuing crisis — issuing risky loans to millions of households and businesses across the country.
Also, because of its relatively modest size — by comparison, JPMorgan Chase, the nation’s largest bank, has more than $3 trillion in assets — SVB was not subject to the Fed’s regular stress tests. Bigger banks in the U.S. (along with smaller institutions in Europe and the U.K.) are subject to such reviews of their financial health, reducing the odds of a larger meltdown.
Still, more individual banks, especially small and regional lenders, could be at risk. Trading in shares of at least a dozen regional banks was halted Monday as jittery investors bailed from bank stocks. San Francisco-based First Republic Bank, which has $212 billion in assets, lost more than 70% in early trade, while Western Alliance Bancorporation tumbled 81%, PacWest Bancorp plunged 50% and Zions Bancorporation sank 27%.
“While the situation remains in flux, there are good reasons to think that [SVB’s failure] does not call into question the solvency of the U.S. or wider global financial system in the way that Lehman did,” analysts with Capital Economics said in a report. “But it illustrates the extent to which vulnerabilities are lurking in the financial sector and strengthens the case for central banks to exercise caution in raising rates further as the effects of policy tightening so far become apparent.”
Is the crisis over?
Not yet, although most banking experts and market analysts think the immediate financial crisis will pass.
“For now, markets are not anticipating a Lehman Brothers-style panic, and based on existing information that is a reasonable response,” Eric Vanraes, portfolio manager of the Strategic Bond Opportunities Fund at Eric Sturdza Investments, said in an email. “If we were in a Lehman-style environment, the Fed would have already cut rates.”
The political reverberations, however, are likely to persist for some time to come. Expect lawmakers to summon banking regulators and industry executives to Congress to explain what happened and how to shore up lenders to guard against future bank runs. Yellen is likely to face questions about the situation when she appears before the Senate Finance Committee on Thursday to discuss the Biden administration’s 2024 budget.
One key question will likely center on whether bank customers across the U.S. with funds exceeding the FDIC’s $250,000 insurance limit can always expect the government to step in when lenders collapse. Although such government backstops can help ensure confidence in the financial system, critics say it also creates “moral hazard,” leading bank executives to take the kind of risks that required taxpayers to ride to the rescue in 2009.
Longer term, financial regulators are likely to face pressure to tighten their oversight of regional banks, especially of lenders like SVB with a large share of uninsured deposits. According to analysts at JPMorgan, uninsured deposit levels at the country’s biggest banks average around 43%, but that figure can top 60% for some regional institutions — a risk when lenders topple.
That potential risk is considerable: Overall, roughly $7 trillion of deposits in U.S. banks is uninsured — 43% of total domestic deposits, the bank noted.
The collapse of Silicon Valley Bank is having a trickle-down effect on fintechs and banks within the financial services industry, but Cross River Bank is not one— in fact, the bank is swooping in to capture business amid the fall of its competitors. For example, the $9.2 billion Ft. Lee, N.J.-based bank was selected by […]
Two large banks that cater to the tech industry have collapsed after a bank run, government agencies are taking emergency measures to backstop the financial system, and President Joe Biden is reassuring Americans that the money they have in banks is safe.
It’s all eerily reminiscent of the financial meltdown that began with the bursting of the housing bubble 15 years ago. Yet the initial pace this time around seems even faster.
Over the last three days, the U.S. seized the two financial institutions after a bank run on Silicon Valley Bank, based in Santa Clara, California. It was the largest bank failure since Washington Mutual went under in 2008.
How did we get here? And will the steps the government unveiled over the weekend be enough?
Here are some questions and answers about what has happened and why it matters:
WHY DID SILICON VALLEY BANK FAIL?
Silicon Valley Bank had already been hit hard by a rough patch for technology companies in recent months and the Federal Reserve’s aggressive plan to increase interest rates to combat inflation compounded its problems.
The bank held billions of dollars worth of Treasuries and other bonds, which is typical for most banks as they are considered safe investments. However, the value of previously issued bonds has begun to fall because they pay lower interest rates than comparable bonds issued in today’s higher interest rate environment.
That’s usually not an issue either because bonds are considered long term investments and banks are not required to book declining values until they are sold. Such bonds are not sold for a loss unless there is an emergency and the bank needs cash.
Silicon Valley, the bank that collapsed Friday, had an emergency. Its customers were largely startups and other tech-centric companies that needed more cash over the past year, so they began withdrawing their deposits. That forced the bank to sell a chunk of its bonds at a steep loss, and the pace of those withdrawals accelerated as word spread, effectively rendering Silicon Valley Bank insolvent.
WHAT DID THE GOVERNMENT DO SUNDAY?
The Federal Reserve, the U.S. Treasury Department, and Federal Deposit Insurance Corporation decided to guarantee all deposits at Silicon Valley Bank, as well as at New York’s Signature Bank, which was seized on Sunday. Critically, they agreed to guarantee all deposits, above and beyond the limit on insured deposits of $250,000.
Many of Silicon Valley’s startup tech customers and venture capitalists had far more than $250,000 at the bank. As a result, as much as 90% of Silicon Valley’s deposits were uninsured. Without the government’s decision to backstop them all, many companies would have lost funds needed to meet payroll, pay bills, and keep the lights on.
The goal of the expanded guarantees is to avert bank runs — where customers rush to remove their money — by establishing the Fed’s commitment to protecting the deposits of businesses and individuals and calming nerves after a harrowing few days.
Also late Sunday, the Federal Reserve initiated a broad emergency lending program intended to shore up confidence in the nation’s financial system.
Banks will be allowed to borrow money straight from the Fed in order to cover any potential rush of customer withdrawals without being forced into the type of money-losing bond sales that would threaten their financial stability. Such fire sales are what caused Silicon Valley Bank’s collapse.
If all works as planned, the emergency lending program may not actually have to lend much money. Rather, it will reassure the public that the Fed will cover their deposits and that it is willing to lend big to do so. There is no cap on the amount that banks can borrow, other than their ability to provide collateral.
HOW IS THE PROGRAM INTENDED TO WORK?
Unlike its more byzantine efforts to rescue the banking system during the financial crisis of 2007-08, the Fed’s approach this time is relatively straightforward. It has set up a new lending facility with the bureaucratic moniker, “Bank Term Funding Program.”
The program will provide loans to banks, credit unions, and other financial institutions for up to a year. The banks are being asked to post Treasuries and other government-backed bonds as collateral.
The Fed is being generous in its terms: It will charge a relatively low interest rate — just 0.1 percentage points higher than market rates — and it will lend against the face value of the bonds, rather than the market value. Lending against the face value of bonds is a key provision that will allow banks to borrow more money because the value of those bonds, at least on paper, has fallen as interest rates have moved higher.
As of the end of last year U.S. banks held Treasuries and other securities with about $620 billion of unrealized losses, according to the FDIC. That means they would take huge losses if forced to sell those securities to cover a rush of withdrawals.
HOW DID THE BANKS END UP WITH SUCH BIG LOSSES?
Ironically, a big chunk of that $620 billion in unrealized losses can be tied to the Federal Reserve’s own interest-rate policies over the past year.
In its fight to cool the economy and bring down inflation, the Fed has rapidly pushed up its benchmark interest rate from nearly zero to about 4.6%. That has indirectly lifted the yield, or interest paid, on a range of government bonds, particularly two-year Treasuries, which topped 5% until the end of last week.
When new bonds arrive with higher interest rates, it makes existing bonds with lower yields much less valuable if they must be sold. Banks are not forced to recognize such losses on their books until they sell those assets, which Silicon Valley was forced to do.
HOW IMPORTANT ARE THE GOVERNMENT GUARANTEES?
They’re very important. Legally, the FDIC is required to pursue the cheapest route when winding down a bank. In the case of Silicon Valley or Signature, that would have meant sticking to rules on the books, meaning that only the first $250,000 in depositors’ accounts would be covered.
Going beyond the $250,000 cap required a decision that the failure of the two banks posed a “systemic risk.” The Fed’s six-member board unanimously reached that conclusion. The FDIC and the Treasury Secretary went along with the decision as well.
WILL THESE PROGRAMS SPEND TAXPAYER DOLLARS?
The U.S. says that guaranteeing the deposits won’t require any taxpayer funds. Instead, any losses from the FDIC’s insurance fund would be replenished by a levying an additional fee on banks.
Yet Krishna Guha, an analyst with the investment bank Evercore ISI, said that political opponents will argue that the higher FDIC fees will “ultimately fall on small banks and Main Street business.” That, in theory, could cost consumers and businesses in the long run.
WILL IT ALL WORK?
Guha and other analysts say that the government’s response is expansive and should stabilize the banking system, though share prices for medium-sized banks, similar to Silicon Valley and Signature, plunged Monday.
“We think the double-barreled bazooka should be enough to quell potential runs at other regional banks and restore relative stability in the days ahead,” Guha wrote in a note to clients.
Paul Ashworth, an economist at Capital Economics, said the Fed’s lending program means banks should be able to “ride out the storm.”
“These are strong moves,” he said.
Yet Ashworth also added a note of caution: “Rationally, this should be enough to stop any contagion from spreading and taking down more banks … but contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work.”
Silicon Valley Bankcollapsed with astounding speed on Friday. Investors are now on edge about whether its demise could spark a broader banking meltdown.
The US federal government has stepped in to guarantee customer deposits, but SVB’s downfall continues to reverberate across global financial markets. The government has also shut down Signature Bank, a regional bank that was teetering on the brink of collapse, and guaranteed its deposits.
In a sign of how seriously officials are taking the SVB failure, US President Joe Biden told Americans Monday that they “can rest assured that our banking system is safe,” adding: “We will do whatever is needed on top of all this.”
Here’s what you need to know about the biggest US bank failure since the global financial crisis.
Established in 1983, Silicon Valley Bank was, just before collapsing, America’s 16th largest commercial bank. It provided banking services to nearly half of all US venture-backed technology and life science companies.
It also has operations in Canada, China, Denmark, Germany, Ireland, Israel, Sweden and the United Kingdom.
SVB benefited hugely fromthe tech sector’s explosive growth in recent years, fueled by ultra-low borrowing costs and a pandemic-induced boom in demand for digital services.
The bank’s assets, which include loans, more than tripled from $71 billion at the end of 2019 to a peak of $220 billion at the end of March 2022, according to financial statements. Deposits ballooned from $62 billion to $198 billion over that period, as thousands of tech startups parked their cash at the lender. Its global headcount more than doubled.
SVB’s collapse came suddenly, following a frenetic 48 hours during which customers yanked deposits from the lender in a classic run on the bank.
But the root of its demise goes back several years. Like manyother banks, SVB ploughed billions into US government bonds during the era of near-zero interest rates.
What seemed like a safe bet quickly came unstuck, as the Federal Reserve hiked interest rates aggressively to tame inflation.
When interest rates rise, bond prices fall, so the jump in rates eroded the value of SVB’s bond portfolio. The portfolio was yielding an average 1.79% return last week, far below the 10-year Treasury yield of around 3.9%, Reuters reported.
At the same time, the Fed’s hiking spree sent borrowing costs higher, meaning tech startups had to channel more cash towards repaying debt. At the same time, they were struggling to raise new venture capital funding.
That forced companies to draw down on deposits held by SVB to fund their operations and growth.
While SVB’s problems can be traced back to its earlier investment decisions, the run on the bank was triggered Wednesday when the lender announced that it had sold a bunch of securities at a loss and would sell $2.25 billion in new shares to plug the hole in its finances.
That set off panic among customers, who withdrew their money in large numbers.
The bank’s stock plummeted 60% Thursday and dragged other bank shares down with it as investors began to fear a repeat of the global financial crisis a decade and a half ago.
By Friday morning, trading in SVB shares was halted and it had abandoned efforts to raise capital or find a buyer. California regulators intervened, shutting the bank down and placing it in receivership under the Federal Deposit Insurance Corporation, which typically means liquidating the bank’s assets to pay back depositors and creditors.
US regulators said Sunday that they would guarantee all SVB customers’ deposits. The move is aimed at preventing more bank runs and helping tech companies to continue paying staff and funding their operations.
The intervention does not amount to a 2008-style bailout, however, which means investors in the company’s stock and bonds will not be protected.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place mean that we’re not going to do that again,” Treasury Secretary JanetYellen told CBS in an interview Sunday.
“But we are concerned about depositors and are focused on trying to meet their needs.”
There are already some signs of stress at other banks. Trading in First Republic Bank
(FRC) and PacWest Bancorp
(PACW) was temporarily halted Monday after the shares plunged 65% and 52% respectively. Charles Schwab
(SCHW) stock was down 7% at 11.30 a.m. ET Monday.
In Europe, the benchmark Stoxx Europe 600 Banks index, which tracks 42 big EU and UK banks, fell 5.6% in morning trade — notching its biggest fall since last March. Shares in embattled Swiss banking giant Credit Suisse were down 9%.
SVB isn’t the only financial institution whose investments into government bonds and other assets have fallen dramatically in value.
At the end of 2022, US banks were sitting on $620 billion in unrealized losses — assets that have decreased in price but haven’t been sold yet, according to the FDIC.
In a sign that regulators have concerns about wider financial chaos, the Fed said Sunday that it would make additional funding available for eligible financial institutions to prevent the next SVB from collapsing.
Most analysts point out that US and European banks have much stronger financial buffers now than during the global financial crisis. They also highlight that SVB had very heavy exposure to the tech sector, which has been particularly hard hit by rising interest rates.
“While SVB is a major failure, [it] and other niche players like Signature are quite unique in the broader banking world,” research analysts David Covey, Adrian Cighi and Jaimin Shah at M&G Investments commented in a blog post on Monday. “So unique, in our view, that it is unlikely to create material problems for any of the large diversified banks in the US or Europe from a credit point of view.”
HSBC stepped in Monday to buy SVB UK for £1 ($1.2), securing the deposits of thousands of British tech companies that hold money at the lender.
Had a buyer not been found, SVB UK would have been placed into insolvency by the Bank of England, leaving customers with only deposits worth up to £85,000 ($100,000) — or £170,000 ($200,000) for joint accounts — guaranteed.
The HSBC rescue is “fantastic news” for the UK startup ecosystem, said Piotr Pisarz, the CEO of Uncapped, a financial tech startup that lends to other startups. “I think we can all relax a bit today,” he told CNN.
In a statement, HSBC CEO Noel Quinn said the acquisition “strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life science sectors, in the UK and internationally.”
NEW YORK (AP) — Governments in the UK and U.S. took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank, even as another major bank was shut down.
The UK Treasury and the Bank of England announced early Monday that they had facilitated the sale of Silicon Valley Bank UK to HSBC, Europe’s biggest bank, ensuring the security of 6.7 billion pounds ($8.1 billion) of deposits.
British officials worked throughout the weekend to find a buyer for the UK subsidiary of the California-based bank. Its collapse was the second-largest bank failure in history.
U.S. regulators also worked all weekend to try to find a buyer. Those efforts appeared to have failed Sunday, but U.S. officials assured all depositors that they could access all their money quickly.
The announcement came amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread.
Santa Clara Police officers exit Silicon Valley Bank in Santa Clara, Calif., on March 10, 2023.
In a sign of how fast the financial bleeding was occurring, regulators announced that New York-based Signature Bank had also failed and was being seized on Sunday. At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history.
The near-financial crisis left Asian markets jittery as trading began Monday. Japan’s benchmark Nikkei 225 sank 1.6% in morning trading, Australia’s S&P/ASX 200 lost 0.3% and South Korea’s Kospi shed 0.4%. But Hong Kong’s Hang Seng rose 1.4% and the Shanghai Composite increased 0.3%.
In an effort to shore up confidence in the banking system, the Treasury Department, Federal Reserve and FDIC said Sunday that all Silicon Valley Bank clients would be protected and able to access their money. They also announced steps that are intended to protect the bank’s customers and prevent additional bank runs.
“This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement.
Under the plan, depositors at Silicon Valley Bank and Signature Bank, including those whose holdings exceed the $250,000 insurance limit, will be able to access their money on Monday.
Also Sunday, another beleaguered bank, First Republic Bank, announced that it had bolstered its financial health by gaining access to funding from the Fed and JPMorgan Chase.
In a separate announcement, the Fed late Sunday announced an expansive emergency lending program that’s intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole. Fed officials characterized the program as akin to what central banks have done for decades: Lend freely to the banking system so that customers would be confident that they could access their accounts whenever needed.
The lending facility will allow banks that need to raise cash to pay depositors to borrow that money from the Fed, rather than having to sell Treasuries and other securities to raise the money. Silicon Valley Bank had been forced to dump some of its Treasuries at at a loss to fund its customers’ withdrawals. Under the Fed’s new program, banks can post those securities as collateral and borrow from the emergency facility.
The Treasury has set aside $25 billion to offset any losses incurred under the Fed’s emergency lending facility. Fed officials said, however, that they do not expect to have to use any of that money, given that the securities posted as collateral have a very low risk of default.
Analysts said the Fed’s program should be enough to calm financial markets.
“Monday will surely be a stressful day for many in the regional banking sector, but today’s action dramatically reduces the risk of further contagion,” economists at Jefferies, an investment bank, said in a research note.
Though Sunday’s steps marked the most extensive government intervention in the banking system since the 2008 financial crisis, its actions are relatively limited compared with what was done 15 years ago. The two failed banks themselves have not been rescued, and taxpayer money has not been provided to the banks.
President Joe Biden said Sunday evening as he boarded Air Force One back to Washington that he would speak about the bank situation on Monday. In a statement, Biden also said he was “firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”
Regulators had to rush to close Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.
Some prominent Silicon Valley executives feared that if Washington didn’t rescue the failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.
Among the bank’s customers are a range of companies from California’s wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups devoted to combating climate change. Sunrun, which sells and leases solar energy systems, had less than $80 million of cash deposits with Silicon Valley. Stitchfix, the clothing retail website, disclosed recently that it had a credit line of up to $100 million with Silicon Valley Bank and other lenders.
Tiffany Dufu, founder and CEO of The Cru, a New York-based career coaching platform and community for women, posted a video Sunday on LinkedIn from an airport bathroom, saying the bank crisis was testing her resiliency. Given that her money was tied up at Silicon Valley Bank, she had to pay her employees out of her personal bank account. With two teenagers to support who will be heading to college, she said she was relieved to hear that the government’s intent is to make depositors whole.
“Small businesses and early-stage startups don’t have a lot of access to leverage in a situation like this, and we’re often in a very vulnerable position, particularly when we have to fight so hard to get the wires into your bank account to begin with, particularly for me, as a Black female founder,” Dufu told The Associated Press.
Silicon Valley Bank began its slide into insolvency when its customers, largely technology companies that needed cash as they struggled to get financing, started withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals, leading to the largest failure of a U.S. financial institution since the height of the financial crisis.
Treasury Secretary Janet Yellen pointed to rising interest rates, which have been increased by the Federal Reserve to combat inflation, as the core problem for Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.
Sheila Bair, who was chairwoman of the FDIC during the 2008 financial crisis, recalled that with nearly all the bank failures then, “we sold a failed bank to a healthy bank. And usually, the healthy acquirer would also cover the uninsured because they wanted the franchise value of those large depositors so optimally, that’s the best outcome.”
But with Silicon Valley Bank, she told NBC’s “Meet the Press,” “this was a liquidity failure, it was a bank run, so they didn’t have time to prepare to market the bank. So they’re having to do that now, and playing catch-up.”
Rugaber and Megerian reported from Washington. Sweet and Bussewitz reported from New York.
Associated Press Writers Hope Yen in Washington, Jennifer McDermott in Providence, Rhode Island, and Danica Kirka in London contributed to this report.
It wasn’t just Washington that scrambling to deal with the collapse of Silicon Valley Bank.
Officials in the U.K. conducted all-night talks between Sunday and Monday in a last-ditch effort to find a buyer for SVB’s British unit, announcing that HSBC would take over the bank with just an hour to spare before markets opened.
The U.K.’s rescue deal is the most extreme example of how SVB’s global reach is forcing governments globally to pledge to stablize markets and protect local startups in the biggest collapse of a U.S. bank since 2008.
After the Bank of England said it would seek to start insolvency proceedings for the U.K. unit of SVB on Friday, officials scrambled to negotiate a sale of the local subsidiary and avoid a direct intervention to protect customers.
On Monday morning, the country’s chancellor of the exchequer took to Twitter to announce that there was a buyer: HSBC. The British bank said in a statement that it was buying SVB’s British unit for the grand total of £1 ($1.21).
Hunt said on Twitter that depositors would be protected, with no cost to taxpayers.
This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC
Deposits will be protected, with no taxpayer support
I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise
Members of the U.K. startup community had called on the government to take more aggressive action to save the bank. Over 250 tech executives wrote to Hunt on Saturday describing SVB’s collapse as an “existential threat” to the country’s tech sector, reports Reuters.
British startups even pointed to the U.S. response to SVB, announced on Sunday, to encourage officials to do more, with one association representing startups calling Washington’s response the “bar” London needed to reach.
Hunt had earlier pledged to help startups meet payroll and other cash flow obligations in the event that their SVB accounts were frozen.
Canada
The U.K. is not the only country experiencing the effects of SVB’s collapse.
Also on Sunday, Canada’s banking regulator took temporary control of SVB’s Canadian unit, and said it would seek to wind up the bank’s operations. The Office of the Superintendent of Financial Institutions said it took action to protect SVB’s creditors. Unlike in the U.S., the bank’s Canadian arm did not take deposits.
Still, Canadian startups, like their U.S. counterparts, risk having their accounts frozen due to SVB’s collapse. One such firm, the adtech provider AcuityAds Holdings, said that 90% of its cash was tied up in SVB deposits.
China
Silicon Valley Bank was also an important partner for many Chinese startups. The bank was one of the first foreign institutions to serve the Chinese tech sector, and Chinese founders joined to also take advantage of networking opportunities through the bank.
SVB has a joint venture with Shanghai Pudong Development Bank. On Saturday, the joint venture said it “has always operated in a stable manner in accordance with Chinese laws and regulations, with a standard governance framework and independent balance sheet,” in a statement on WeChat, according to the South China Morning Post.
Yet it’s not clear that the now-failed U.S. bank can remain a partner in the joint venture given its collapse, according to the Financial Times.
Over a dozen Hong Kong-listed companies shared that they had deposits in SVB in exchange filings on Sunday. On Monday, the Hong Kong Monetary Authority, the city’s de facto central bank, said it was monitoring the situation while saying the city’s banking system could withstand SVB’s collapse.
Even countries without a Silicon Valley Bank presence are paying close attention to its collapse. The Bank of Korea said Monday that it was ready to stabilize the country’s equity and currency markets for any SVB-related fallout.
The U.S. response
On Sunday, the U.S. Federal Reserve announced it would protect all deposits at Silicon Valley Bank, including those that breached normal limits for U.S. deposit insurance. Depositors would be able to access their accounts on Monday, officials said.
The Federal Reserve promised similar protections for depositors at Signature Bank, a New York-based bank that also failed over the weekend.
The Federal Reserve also announced a new lending program allowing banks to borrow money from the central bank using bonds and other securities—priced at par, rather than market value—as collateral.
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HSBC has scooped up the UK arm of Silicon Valley Bank for £1 ($1.2), just days after its business in the United States collapsed in stunning fashion.
SVB UK would have beenplaced into insolvency by the Bank of England following the failure of its parent, had a buyer not been found.
In a statement, the Bank of England said it “can confirm that all depositors’ money with SVB UK is safe and secure as a result of this transaction.”
Europe’s biggest bank announced the acquisition early Monday morning, saying the deal would be effective “immediately.”
In a statement, HSBC CEO Noel Quinn said the deal means that “SVB UK customers can continue to bank as usual, safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC.”
“This acquisition makes excellent strategic sense for our business in the UK,” he said. “It strengthens our commercial banking franchise and enhances our ability to serve innovative and fast-growing firms, including in the technology and life-science sectors, in the UK and internationally.”
As of last Friday, SVB UK had loans of approximately £5.5 billion ($6.7 billion) and deposits of around £6.7 billion ($8.1 billion), according to the statement. It also logged a pretax profit of £88 million ($106.5 million) in its last fiscal year ended December.
SVB, a lender best known for providing financing to startups, had faced liquidity concerns in the United States, triggering a huge bank run last week. That ultimately led to its collapse, the second-biggest of a financial institution in US history, on Friday.
US financial regulators reacted swiftly to concerns of contagion over the weekend, announcing that customers of the failed bank would get access to all their money starting Monday.
Authorities have also guaranteed deposits for customers of Signature Bank, a regional US lender shut down by regulators because it had faced financial trouble in recent days.
The U.S. government announced Sunday that it is deploying emergency measures to shore up the banking system and backstop deposits at two banks that failed within a matter of days.
All deposit accounts at both institutions, Silicon Valley Bank and Signature Bank in New York, will be guaranteed, according to a joint statement released by the Federal Reserve, the Department of the Treasury and Federal Deposit Insurance Corporation (FDIC).
Depositors with SVB “will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” the statement said.
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority,” the statement continued. “All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.”
The statement indicates that the auction process to find a buyer for SVB is likely dead. Federal regulators were working to find a buyer for Silicon Valley Bank, and Treasury Secretary Janet Yellen told “Face the Nation” on Sunday that the FDIC was considering a “range of available options” to stabilize the situation, including an acquisition by a foreign bank.
President Biden said in a statement on Sunday that he was “firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.” He will address the situation during remarks on Monday morning, the statement said.
Silicon Valley Bank was shut down by California regulators on Friday after depositors rushed to withdraw funds amid concerns about the bank’s balance sheet. The (FDIC) was appointed receiver and created the Deposit Insurance National Bank of Santa Clara, to which all insured deposits of Silicon Valley Bank were transferred.
The 40-year-old bank ranked as the 16th-largest in the U.S. before its failure and is the largest financial institution to collapse since Washington Mutual at the height of the financial crisis in 2008. Signature Bank’s failure marks the third-largest bank collapse in U.S. history, according to The Associated Press.
Signature Bank is FDIC-insured and had assets of around $110.36 billion, with total deposits of about $88.59 billion as of Dec. 31, 2022, The New York Department of Financial Services said in a statement. Both figures were roughly half of what SVB had at the end of 2022 — $209 billion in total assets and about $174.5 billion in total deposits, according to the agency. according to the FDIC.
The emergency measures came after Yellen on Sunday ruled out a federal bailout for Silicon Valley Bank’s investors after the bank was abruptly shuttered. But she did express concern about the impact to depositors.
“During the financial crisis, there were investors and owners of systemic large banks that were bailed out,” Yellen said in an interview with “Face the Nation” on Sunday. “And the reforms that have been put in place means that we’re not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs.”
During a call with reporters on Sunday, a senior Treasury official said “no other depositors need to worry about the future of their banks.”
The official said the FDIC will use funds from the Depositor Insurance Fund to ensure that depositors are made whole and that the DIF is bearing the risk, not the taxpayer.
“The situation is not 2008,” the official added. “There are lot of reforms that have been put in place and we are trying to help depositors of institutions. The bank’s equity and bondholders are being wiped out. They took a risk, as owners of these securities; they will take the losses.”
The Federal Reserve also said Sunday that it will make additional funding available “to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors,” according to a press release.
The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), “offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral,” the statement reads.
Treasury Secretary Janet Yellen told “Face the Nation” that the federal government will not provide a bailout for Silicon Valley Bank’s investors. Regulators are working to find a buyer for the bank, which abruptly shuttered Friday. Skyler Henry reports.
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NEW YORK (AP) — Can Washington come to the rescue of the depositors of failed Silicon Valley Bank? Is it even politically possible?
That was one of the growing questions in Washington Sunday as policymakers tried to figure out whether the U.S. government — and its taxpayers — should bail out a failed bank that largely served Silicon Valley, with all its wealth and power.
Prominent Silicon Valley personalities and executives have been hitting the giant red “PANIC” button, saying that if Washington does not come to the rescue of Silicon Valley bank’s depositors, more bank runs are likely.
“The gov’t has about 48 hours to fix a soon-to-be-irreversible mistake,” Bill Ackman, a prominent Wall Street investor, wrote on Twitter. Ackman has said he does not have any deposits with Silicon Valley Bank but is invested in companies that do.
Some other Silicon Valley personalities have been even more bombastic.
“On Monday 100,000 Americans will be lined up at their regional bank demanding their money — most will not get it,” Jason Calacanis wrote on Twitter. Calacanis, a tech investor, has been close with Elon Musk, who recently took over the social media network.
Silicon Valley Bank failed on Friday, as fearful depositors withdrew billions of dollars from the bank in a matter of hours, forcing U.S. banking regulators to urgently close the bank in the middle of the workday to stop the bank run. It’s the second-largest bank failure in history, behind the collapse of Washington Mutual at the height of the 2008 financial crisis.
Silicon Valley Bank was a unique creature in the banking world. The 16th-largest bank in the country largely served technology startup companies, venture capital firms, and well-paid technology workers, as its name implies. Because of this, the vast majority of the deposits at Silicon Valley Bank were in business accounts with balances significantly above the insured $250,000 limit.
Its failure has caused more than $150 billion in deposits to be now locked up in receivership, which means startups and other businesses may not be able to get to their money for a long time.
Staff at the Federal Deposit Insurance Corporation — the agency that insures bank deposits under $250,000 — have worked through the weekend looking for a potential buyer for the assets of the failed bank. There have been multiple bidders for assets, but as of Sunday morning, the bank’s corpse remained in the custody of the U.S. government.
Despite the panic from Silicon Valley, there are no signs that the bank’s failure could lead to a 2008-like crisis. The nation’s banking system is healthy, holds more capital than it has ever held in its history, and has undergone multiple stress tests that shows the overall system could withstand even a substantial economic recession.
Further, it appears that Silicon Valley Bank’s failure appears to be a unique situation where the bank’s executives made poor business decisions by buying bonds just as the Federal Reserve was about to raise interest rates, and the bank was singularly exposed to one particular industry that has seen a severe contraction in the past year.
Investors have been looking for banks in similar situations. The stock of First Republic Bank, a bank that serves the wealthy and technology companies, went down nearly a third in two days. PacWest Bank, a California-based bank that caters to small to medium-sized businesses, plunged 38% on Friday.
While highly unusual, it was clear that a bank failure this size was causing worries. Treasury Secretary Janet Yellen as well as the White House, has been “watching closely” the developments; the governor of California has spoken to President Biden; and bills have now been proposed in Congress to up the FDIC insurance limit to temporarily protect depositors.
“I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” Yellen said on “Face the Nation” on Sunday.
But Yellen made it clear in her interview that if Silicon Valley is expecting Washington to come to its rescue, it is mistaken. Asked whether a bailout was on the table, Yellen said, “We’re not going to do that again.”
“But we are concerned about depositors, and we’re focused on trying to meet their needs,” she added.
Sen. Mark Warner, D-Virginia, said on ABC’s “This Week” that it would be a “moral hazard” to potentially bail out Silicon Valley’s uninsured depositors. Moral hazard was a term used often during the 2008 financial crisis for why Washington shouldn’t have bailed out Lehman Brothers.
The growing panic narrative among tech industry insiders is many businesses who stored their operating cash at Silicon Valley Bank will be unable to make payroll or pay office expenses in the coming days or weeks of those uninsured deposits are not released. However, the FDIC has said it plans to pay an unspecified “advanced dividend” — i.e. a portion of the uninsured deposits — to depositors this week and said more advances will be paid as assets are sold.
The ideal situation is the FDIC finds a singular buyer of Silicon Valley Bank’s assets, or maybe two or three buyers. It is just as likely that the bank will be sold off piecemeal over the coming weeks. Insured depositors will have access to their funds on Monday, and any uninsured deposits will be available as the FDIC sells off assets to make depositors whole.
Todd Phillips, a consultant and former attorney at the FDIC, said he expects that uninsured depositors will likely get back 85% to 90% of their deposits if the sale of the bank’s assets is done in an orderly manner. He said it was never the intention of Congress to protect business accounts with deposit insurance — that the theory was businesses should be doing their due diligence on banks when storing their cash.
Protecting bank accounts to include businesses would require an act of Congress, Phillips said. It’s unclear whether the banking industry would support higher insurance limits as well, since FDIC insurance is paid for by the banks through assessments and higher limits would require higher assessments.
Philips added the best thing Washington can do is communicate that the overall banking system is safe and that uninsured depositors will get most of their money back.
“Folks in Washington need to be forcefully countering the narrative on Twitter coming from Silicon Valley. If people realize they are going to get 80% to 90% of your deposits back, but it will take awhile, it will do a lot to stop a panic,” he said.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking,” Yellen told CBS News when asked if there will be a bailout. “And the reforms that have been put in place means that we’re not going to do that again.”
Also Sunday, Shalanda Young, the director of the White House Office of Management and Budget, stressed in an interview with CNN’s Kaitlan Collins on “State of the Union” that the US banking system at large was “more resilient” now.
“It has a better foundation than before the [2008] financial crisis. That’s largely due to the reforms put in place,” Young said on “State of the Union.”
Yellen said she’s been hearing from depositors all weekend, many of whom are “small businesses” and employ thousands of people. “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” the Treasury secretary said, declining to provide further details.
SVB collapsed Friday morning after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history.
California regulators closed down the tech lender and put it under the control of the US Federal Deposit Insurance Corporation. The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.
Despite initial panic on Wall Street over the run on SVB, which caused its shares to crater, analysts said the bank’s collapse is unlikely to set off the kind of domino effect that gripped the banking industry during the financial crisis.
Republican Rep. Nancy Mace of South Carolina told Collins in a separate interview on “State of the Union” that she doesn’t support a bailout “at this time” but cautioned, “It’s still very early.”
“We cannot keep bailing out private companies because there’s no consequences to their actions. People, when they make mistakes or break the law, have to be held accountable in this country,” she said.
While relatively unknown outside Silicon Valley, SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the FDIC. It’s the largest lender to fail since Washington Mutual collapsed in 2008.
The US Federal Deposit Insurance Corporation offered Silicon Valley Bank employees 45 days of employment and 1.5 times their salary, reports say.
An FDIC official did not comment on the details to CNN, but said it is standard practice and one of the first steps the independent government agency takes after being named receiver.
US workers also received their annual bonuses on Friday, just hours before FDIC took over the collapsed lender, Axios reported.
SVB collapsed Friday morning after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history.
California regulators shuttered the tech lender and put it under the control of the FDIC.
The FDIC is acting as a receiver, which typically means it will liquidate the bank’s assets to pay back its customers, including depositors and creditors.
Employees, except essential and branch workers, were told to keep working remotely, Reuters reported. The bank had more than 8,500 employees at the end of 2022.
The FDIC said the main office and all 17 branches of SVB, located in California and Massachusetts, will reopen Monday.
The FDIC, an independent government agency that insures bank deposits and oversees financial institutions, said all insured depositors will have full access to their insured deposits by no later than Monday morning. It said it would pay uninsured depositors an “advance dividend within the next week.”
The FDIC took over in the midmorning Friday; usually it waits until markets close.
“SVB’s condition deteriorated so quickly that it couldn’t last just five more hours,” wrote Better Markets CEO Dennis M. Kelleher. “That’s because its depositors were withdrawing their money so fast that the bank was insolvent, and an intraday closure was unavoidable due to a classic bank run.”
The Government does not see any ‘serious’ impact on the overall Indian financial system due to the breakdown of Silicon Valley Bank (SVB). However, it does acknowledge that stock market and start-up ecosystem may face some heat.
“We do not see any serious implication on our financial system due to development in the US,” a senior Government official told businessline. While he did not explain it further, two reasons could be attributed for this deduction – the first is that there is a much-improved regulatory mechanism for banks and financial system in India and the second is the unique business model of the said bank that was less dependent on retail deposits than a traditional bank.
California-based Silicon Valley Bank (SVB), the 16th largest bank in the United States, was closed on March 10 by the Financial Protection and Innovation, which later appointed the Federal Deposit Insurance Corporation (FDIC) as its receiver. The FDIC, in a statement, said as of December 31, 2022, the Silicon Valley Bank had approximately $209 billion in total assets and about $175.4 billion in total deposits. At the time of closing on March 10, the amounts of deposits in excess of the insurance limits were undetermined. Start-up-focused lender, SVB Financial Group, has become the largest bank to fail since the 2008 financial crisis.
Meanwhile, the official, quoted above, mentioned that SVB development combined with the decision from the next Federal Reserve meeting will impact the sentiments in the stock market. “Aggressive rate hike by Federal Reserve being seen as a key reason for SVB problem. So, it would be important to see what is the next move of the Federal Reserve,” he said. One of eight regularly scheduled meetings in a calendar year of the Federal Open Market Committee (FOMC) is to take place on March 21-22 with the summary of Economic Projections.
The official said that since the move by the Federal Reserve impacts yield on the bond, it impacts the sentiments in the stock market, which is already in a bull phase. On Friday, March 10, Sensex and Nifty slipped more than 1 per cent due to heavy selling in IT, financial, and oil stocks in line with a weak trend in the global markets.
The official also felt that Indian start-ups may face the heat as many analysts feel that there could be difficulty in making various kinds of payments. It is said that as almost every third start-up in Silicon Valley is founded by Indian-Americans, there is apprehension that many of these founders would be impacted coming days in terms of even making basic payments and giving paychecks to their employees.
Over the past several years, SVB has been one of the most preferred choices of banking for start-ups and the tech industry in Silicon Valley, mainly because of its understanding of the industry and flexibility in many aspects suiting the start-up ecosystem. At the same time, a large number of Indian start-ups, which do not have even an employee or an office in the US, had opened up their accounts in SVB as it let them do so without much regulatory questions and with a customer-friendly approach.
Regulators seized the assets of Silicon Valley Bank following its collapse, officials announced Friday. Silicon Valley Bank primarily served the tech industry and is the largest financial institution to fail since 2008. Nancy Cordes reports.
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